Rev. Proc. 56-12

SECTION 1. PURPOSE AND GENERAL INFORMATION

.01 The purpose of this Revenue Procedure is to prescribe procedures as to determinations with respect to the qualification of pension, annuity, profit-sharing, and stock bonus plans under section 401(a) of the Internal Revenue Code of 1954, and the status for exemption of related trusts under section 501(a) of the Code.

.02 A trust created or organized in the United States and forming part of a stock bonus, pension, or profit-sharing plan of an employer for the exclusive benefit of his employees or their beneficiaries, which meets the requirements of section 401(a) of the Code, constitutes a qualified trust under such section, and is exempt under section 501(a) of the Code unless exemption is denied under section 502 (relating to feeder organizations) or 503 (relating to prohibited transactions). Such a trust is required to file an annual return as provided by section 6033 of the Code. Form 990-P. U.S. Return of Employees' Trust described in Section 401(a) and exempt under section 501(a) of the Internal Revenue Code of 1954, is used for this purpose. An exempt trust may, however, be subject to tax under section 511 on unrelated business income. Unrelated business income is reported on Form 990-T, U.S. Exempt Organization Business Income Tax Return. A nontrusteed annuity plan which meets the requirements of section 401(a)(3), (4), (5), and (6) may confer special tax treatments provided for under other sections of the Code, such as section 403(a)(2) (long-term capital gain treatment) and section 404(a)(2) (deductions for employer contributions for the purchase of retirement annuities), if the additional provisions of such other sections are also met. Advance determination letters as to the qualification of pension, annuity, profit-sharing, and stock bonus plans under section 401(a), and the status for exemption of related trusts under section 501(a), are not required under the Code or corresponding regulations as a condition precedent for obtaining any of the tax benefits pertaining to qualified plans and exempt trusts. If requested by taxpayers, however, such advance determination letters are issued in accordance with the procedures set forth below.

SEC. 2. ADVANCE DETERMINATION LETTERS

.01 The advance determination letters here contemplated are issued with respect to consummated or proposed transactions relating to:

(a) The initial qualification of a plan and, if trusteed, the status for exemption of a trust forming a part thereof;

(b) Compliance with the applicable requirements of foreign situs trusts as to taxability of beneficiaries (section 402(c)) and deductions for employer contributions (section 404(a)(4));

(c) Amendments to plans and trusts;

(d) Curtailments of plans;

(e) Terminations of plans and trusts; and

(f) The effect on the qualification of the plan, and status for exemption of the trust forming a part thereof, of an investment of trust funds in the stock or securities of the employer or controlled corporation (ownership of 50 percent or more of all voting stock or 50 percent or more of the total value of shares of all classes of stock).

.02 All requests for determination letters within the purview of section 2.01 hereof, together with the applicable supporting data, are to be filed separately (apart from the data furnished with the employer's income tax return) in the office of the District Director of Internal Revenue having jurisdiction in the area prescribed as follows:

(a) In the case of a single employer, where the principal place of business of such employer is located;

(b) In the case of a plan of a parent and subsidiary companies, where the principal place of business of the parent company is situated regardless of whether consolidated returns are filed;

(c) In the case of an industry-wide plan (a plan established in a particular industry by all subscribing employers, some of whom are located in areas within the jurisdiction of more than one Director's office), where the trustee's principal place of business is located or, if more than one trustee, where the usual place of meeting of the trustees is held;

(d) In the case of a pooled fund arrangement (individual trusts under separate plans pooling their funds for investment purposes through a master trust), the request on behalf of the master trust is to be filed with the director's office where the principal place of business of such trust is located, but requests for the participating trusts and related plans are to be filed where the principal place of business of each employer is located or, in the case of parent and subsidiary companies, where the principal place of business of the parent company is located, regardless of whether consolidated returns are filed.

(e) In the case of a plan of multiple employers not otherwise here provided for, where the trustee's principal place of business is located or, if more than one trustee or if nontrusteed, where the usual place of meeting of the trustees or plan supervisors is held.

.03 All requests for determination letters are to be accompanied by information (copies not required), to the extent pertinent, as follows:

(a) For the initial qualification of a plan, or compliance with the applicable requirements of foreign situs trusts, the information called for under section 1.404(a)-2 of the Income Tax Regulations ²³ (section 39.23 (p)-2 of Regulations 118), and information showing: (i) type of organization of employer, (ii) date incorporated, in the case of a corporation, or date business commenced, in the case of other type of organization, (iii) nature of employer's business, and (iv) whether predecessor business, if any, was a corporation, an individual proprietorship or a partnership, name of predecessor, and when transfer took place.

(b) For an amendment, a copy of the amendment and, unless previously filed in connection with a written request for a determination for the same year for which the amendment is to become effective, or if the amendment changes the requirements for coverage or contributions or benefits, the information called for under section 1.404(a)-2 of the Income Tax Regulations ²³ (section 39.23(p)-2 of Regulations 118), and, unless previously furnished, information showing: (i) type of organization of employer, (ii) date incorporated, in the case of a corporation, or date business commenced, in the case of other type of organization, (iii) nature of employer's business, and (iv) whether predecessor business, if any, was a corporation, an individual proprietorship or a partnership, name of predecessor, and when transfer took place.

(c) For a curtailment or termination, the information called for in Exhibit "A" hereof; and

(d) For an investment of trust funds in the stock or securities of the employer, the information called for in Exhibit "B" hereof without duplicating information previously filed. It should be noted that even if a request for such a determination letter is not made, section 1.401-1(b)(5)(ii) of the Income Tax Regulations ²⁴ (section 39.165-1(a)(6) of Regulations 118) requires that a full disclosure be made where trust funds are invested in stock or securities of, or loaned to, the employer. The notification is to consist of the information called for in Exhibit "B" and is to be filed with the appropriate Director's office, as provided for in section 2.02 hereof.

.04 The District Director of Internal Revenue is responsible for the issuance of determination letters within the contemplation of section 2.01 hereof. Such letters will not be issued, however, where the determination requested is primarily one of fact, such as the market value of property or the adequacy of security behind a loan. In such cases the determination will be made upon examination of the applicable tax returns. A favorable determination letter on an investment of trust funds in stock of the employer corporation will contain the statement: "The opinion herein expressed, however, is conditioned on the purchase of such stock at a price not in excess of the fair market value thereof." The letters herein contemplated contain opinions as to the status for qualification and exemption of the plans and trusts referred to therein, and also serve as a basis for determining deductions for exmployer contributions thereunder. A favorable determination, however, is not to be taken as an indication that contributions are necessarily deductible as made. Regardless of whether an advance determination letter is obtained, the allowability of deductions for employer contributions will be determined upon examination of the applicable tax returns in accordance with the limitations, and subject to the conditions, of section 404 of the Code. Rulings and opinions pertaining to matters other than those under section 2.01 hereof, such as taxability of distributees, application of the principles relating to deductions for employer contributions, and determinations as to whether prohibited transactions are involved and as to unrelated business taxable income, are issued through the National Office. Requests therefore should be addressed to Commissioner of Internal Revenue, Washington 25, D.C.

SEC. 3 REVIEW OF DETERMINATION LETTERS

All determination letters issued by District Directors under the procedure herein set forth are subject to post review in the National Office under the jurisdiction of the Assistant Commissioner (Technical).

SEC. 4. REQUESTS FOR ADVICE FROM FIELD OFFICES

Requests for advice from District Directors concerning matters within the contemplation of section 2.01 hereof will be acted upon in the National Office, under the jurisdiction of the Assistant Commissioner (Technical), and advice furnished for appropriate disposition of controversial issues. If the taxpayer requests the District Director to refer an issue to the National Office, he will be advised through the District Director's office whether his request will be complied with, and, if so, when referral is made. In such event, the taxpayer will be granted a conference in the National Office, if requested, and he may furnish a brief or memorandum with respect to the points at issue.

SEC. 5. TAXPAYERS' REQUESTS FOR CONFERENCES AND REVIEW IN NATIONAL OFFICE

.01 Where issues arise in a District Director's office with respect to matters within the contemplation of section 2.01 hereof and the District Director does not refer such issues to the National Office, as provided for in section 4 hereof, the taxpayer concerned may request National Office consideration under the circumstances described below.

.02 Requests for National Office consideration will be entertained upon a clear showing:

(a) That the position of the field office is contrary to the law or regulations on the points at issue:

(b) That the position of the field office is contrary to the position of the Internal Revenue Service as set forth in a published ruling currently in effect;

(c) That the position of the field office is contrary to a court decision which is followed by the Service, i.e., acquiescence in an adverse Tax Court Decision;

(d) That the contemplated field action is in conflict with a determination made in a similar case in the same or another district; or

(e) That the issues arise because of unique or novel facts which had not previously been passed upon, as indicated by published rulings or announcements.

.03 The request for National Office consideration is to contain the information called for in Exhibit "C" hereof. A notice of intention that National Office consideration will be requested is to be filed with the District Director's office where the case is pending. This will consist of a copy of the request which is intended for National Office filing. If an adverse determination is made in the District Director's office, or if no action is taken within 30 days after the filing of such notice, the request is to be filed with the National Office. A determination will then be made whether the case is to be considered at the National Office and the taxpayer will be advised as to such determination. If the determination is to consider the case, the file will be called in from the field office. The taxpayer will then be afforded an opportunity to furnish a brief or memorandum on the points at issue and indicate whether a conference in Washington is desired or whether a determination is to be made on the written submission only. Copies of all written submissions are to be furnished the District Director. The District Director may submit a rebuttal memorandum to the National Office. If a conference is requested, a time and place will be set and the taxpayer advised. The taxpayer may be represented by a person who is enrolled to practice before the Department and duly authorized to appear on his behalf. A determination will be made after full consideration of all the facts presented, taxpayer's briefs or memoranda, District Director's rebuttal memoranda, and conference discussions. The case will then be returned to the field office for appropriate disposition in accordance with the National Office determination and the taxpayer will be notified through the National Office as to such determination.

SEC. 6. EFFECT ON OTHER DOCUMENTS

.01 Revenue Ruling 32, C.B. 1953-1, 265, is superseded by this Revenue Procedure.

.02 Revenue Ruling 54-172, C.B. 1954-1, 394, is amended to conform sections 3.01, 4.04, 7.02, and 7.03 thereof with this Revenue Procedure.

SEC. 7. EFFECTIVE DATE

The effective date of this Revenue Procedure is May 21, 1956.

²³ Section 1.404(a)-2 of the Income Tax Regulations herein referred to was published in proposed form, with notice of rule making, in 20 Federal Register 6455, on September 1, 1955. It is contemplated that final regulations on this particular section will be promulgated without change and that publication will be made in the near future. [EDITOR'S NOTE: Publication in final form has been made as T. D. 6203, I. R. B. 1956-41, 7]

²⁴ Section 1.401-1(b)(5) of the Income Tax Regulations was published in proposed form, with notice of rule making, in 20 Federal Register 6455, on September 1, 1955. It is also contemplated that final regulations on this particular subsection will be promulgated without change. [EDITOR'S NOTE: Publication in final form has been made as T. D. 6203, I. R. B. 1956-41, 7]

                             EXHIBIT "A"