Rev. Proc. 69-4

Section 1. Purpose

This Revenue Procedure sets forth the general procedures of the various offices of the Internal Revenue Service pertaining to the issuance of determination letters on the qualification of individually designed pension, annuity, profit-sharing, and stock bonus plans under section 401(a) of the Internal Revenue Code of 1954, bond purchase plans under section 405(a), and for the issuance of rulings and determination letters on the status for exemption of related trusts or custodial accounts under section 501(a). (A custodial account described in section 401(f) of the Code is treated as a qualified trust for the purposes of the Code.) For procedures relating to master and prototype plans that do not include self-employed individuals, see Revenue Procedure 68-45, C.B. 1968-2, 957. For plans covering self-employed individuals, see Revenue Procedure 69-5, page 395, this Bulletin.

Sec. 2. Background and General Information

.01 A trust created or organized in the United States and forming part of a pension, profit-sharing, or stock bonus plan of an employer for the exclusive benefit of his employees or their beneficiaries that meets the requirements of section 401(a) of the Code is a qualified trust and is exempt from Federal income tax under section 501(a) unless the exemption is denied under section 502, relating to feeder organizations, or section 503, relating to prohibited transactions.

.02 An exempt employees' trust is required to file an annual return as provided by section 6033 of the Code. Form 990-P, Return of Employees' Trust Exempt from Tax, is used for this purpose. An exempt trust may, however, be subject to tax under section 511 of the Code on unrelated business income. Unrelated business income is reported on Form 990-T, Exempt Organization Business Income Tax Return.

.03 A nontrusteed annuity plan that meets the requirements of section 401(a)(3), (4), (5), (6), (7), and (8) of the Code may confer special tax treatment 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.

.04 A favorable determination letter on a pension, annuity, profit-sharing, stock bonus, or bond purchase plan, and on the exempt status of a related trust, if any, is not required as a condition for obtaining the benefits pertaining to the plan or trust. However, section 4.05 of Revenue Procedure 69-1, page 381, this Bulletin, authorizes District Directors to issue determination letters on the qualification of plans and the exempt status of related trusts.

Sec. 3. Determination Letters

.01 Determination letters authorized by section 4.05 of Revenue Procedure 69-1 are limited to the qualification of plans or trusts under section 401(a) of the Code, bond purchase plans under section 405(a), and to the exempt status of trusts under section 501(a). This includes consummated and proposed transactions relating to the following:

1 The initial qualification of a plan and, if trusteed, the status for exemption of the trust;

2 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));

3 Amendments to plans and trusts;

4 Curtailment of plans;

5 Termination of plans and trusts; and

6 The effect on the qualification of the plan, and status for exemption of the trust, 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 Determination letters authorized in section 3.01 do not include determinations on other inquiries concerning plans or trusts. Thus, except as provided in section 3.012, above, District Directors may not issue determination letters relating to issues under other sections of the Code, such as sections 72, 402 through 404, 502, 503, and 511 through 515, unless such determination letters are otherwise authorized under section 4 of Revenue Procedure 69-1. Furthermore, they may not issue determination letters concerning the fair market value of a trust investment, or the adequacy of security behind a loan. These issues are within the prohibited transactions area. See section 8 of this Revenue Procedure.

.03 Employees' trusts must be maintained and operated for the exclusive benefit of employees or their beneficiaries, and investments by such trusts must be consistent with that purpose. See part 2(k)(1) of Revenue Ruling 65-178, C.B. 1965-2, 94, at 104.

Sec. 4. Instructions to Taxpayers

.01 All of the provisions of section 6 of Revenue Procedure 69-1 are applicable to requests for determination letters of the type discussed in this Revenue Procedure. In addition, the information required by sections 4.02 through 4.06 below, together with the identification number of a participating trust, must also be furnished in requesting a determination letter on the qualification of an employees' plan or trust.

.02 If the request relates to the initial qualification of a plan or the compliance with the requirements for a foreign situs trust, the following information must be submitted:

1 The information required by section 1.404(a)-2 of the Income Tax Regulations;

2 Type of organization of employer;

3 Date incorporated, if a corporation, or date business commenced, if other type of organization;

4 Nature of business of employer;

5 Name of predecessor business, if any, type of organization of predecessor, and when transfer took place; and

6 Date on which the accounting year of the trust ends.

.03 If the request relates to an amendment of a plan, the following information must be submitted:

1 A copy of the amendment;

2 The information required by section 1.404(a)-2 of the regulations unless it was furnished with a request for a determination letter for the same year for which the amendment is to become effective. (However, if the amendment changes the requirements for coverage, contributions, or benefits, the information must be submitted even though previously submitted with a prior request.); and

3 The information required by sections 4.022-4.026, above, unless it was previously furnished with a request for a determination letter.

.04 If the request involves a curtailment or termination of the plan, the following information must be submitted:

1 The date the plan was, or is proposed to be, terminated or curtailed or the contributions thereunder completely discontinued, and the date the trust was, or is proposed to be, terminated (liquidated);

2 A statement of the reasons and circumstances for the termination or curtailment;

3 A statement whether any of the funds under the plan will revert to or become available to the employer; if so, details must be furnished;

4 A statement, with full particulars, as to any funds under the plan that at any time were contributed in the form of, or invested in, obligations or property of the employer or related companies;

5 The information specified below, in columnar form, for each of the 25 highest paid employees covered by the plan at the time of termination or curtailment (the most recent anniversary date of the plan if the action is proposed), listed in the order of their compensation, and for all other employees covered by the plan (as a group) and showing the number in the group:

(a) Name and whether an officer or supervisor; (b) Percentage of each class of stock owned directly or indirectly by the employee or members of his family;

(c) Data, separately for the year of termination or curtailment and for each of the 5 preceding years of the plan's operation (if more are required they will be requested) indicating (1) total compensation other than deferred compensation, (2) employer's contribution, (3) employee's contribution, and (4) employee's share of forfeitures;

(d) Totals for each of the columns under section 4.045(c) for each year;

(e) Summary columns aggregating for all years (totaled horizontally) for each employee listed and, for all others, data similar to that required by section 4.045(c). (Note: The data called for in these summary columns is not limited to 5 years but applies to all years of the plan's operation); and

(f) Total value of benefits distributed or to be distributed to each employee listed, and to all others; and

6 A schedule showing separately for the year of termination or curtailment and for each of the 5 perceding years of the plan (if more are required they will be requested):

(a) Number of participants at beginning of year;

(b) Number of participants added in year;

(c) Number of participants dropped in year; and

(d) Number of participants remaining at end of year.

.05 If the request involves an investment of trust funds in the stock or securities of the employer, the following information, without duplicating information previously furnished, must be submitted:

1 Balance sheets of the employer (and controlled corporation, if involved) as of the close of the last 2 taxable years;

2 Comparative statements of income and profit and loss for the last 5 taxable years;

3 Analysis of surplus for the last 5 years, specifically showing the amount and rate of dividends paid on each class of stock;

4 A statement accounting for all material changes from the latest dates of the information in 1, 2, and 3 to the date of filing the information;

5 A schedule showing the nature and amounts of the various assets in the trust fund; and 6 A statement setting forth the amount to be invested in the stock or securities of the employer or a controlled corporation (or both), the nature of the investment, the present rate of return, collateral or type of security for the loan, if any, and the reasons for the investment.

The information called for under sections 4.051, 4.052, and 4.056, and related data, may be submitted in composite form as shown in Exhibit "A," page 394, this Bulletin. A full disclosure must be made where trust funds are invested in stock or securities of, or loaned to, the employer, whether or not a determination letter is requested. The above information must in all cases be furnished to the appropriate District Director. See section 4.07 below.

                              EXHIBIT "A"

.07 Requests for determination letters on matters authorized by section 3.01, and the necessary supporting data, are to be addressed to the District Director specified below:

1 A single employer will address his request to the District Director for the district in which its principal place of business is located.

2 If a parent company and its subsidiaries have a single plan, the request will be addressed to the District Director for the district in which the principal place of business of the parent company is located, whether separate or consolidated returns are filed.

3 If the plan is established or proposed for an industry by all subscribing employers whose principal places of business are located within the jurisdiction of more than one District Director, the request will be addressed to the District Director for the district in which is located the principal place of business of the trustee, or if more than one trustee, the usual meeting place of the trustees.

4 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 will be addressed to the District Director for the district where the principal place of business of such trust is located. Requests on behalf of the participating trusts and related plans will be addressed as otherwise provided herein.

5 In the case of a plan of multiple employers (other than a master or prototype plan) not otherwise herein provided for, the request will be addressed to the District Director for the district in which is located the principal place of business of the trustee, or if not trusteed, or if more than one trustee, the principal or usual meeting place of the trustees or plan supervisors.

6 If the plan is for an organization of the type described in section 4.06 above, the association will address its request to the District Director with whom it is required to file its tax returns.

Sec. 5. Effect of Pension Trust Determination Letters

Determination letters issued pursuant to the provisions of this Revenue Procedure are governed, generally, by the provisions of section 14 of Revenue Procedure 69-1. Determination letters issued under the provisions of this Revenue Procedure contain only opinions as to the qualification of plans under sections 401(a) and 405(a) of the Code and the status of related trusts under section 501(a). While a favorable determination letter may serve as a basis for determining deductions for employer contributions thereunder, it is not to be taken as an indication that contributions are necessarily deductible as made. Such determinations can be made only upon an examination of the employer's tax return, in accordance with the limitations and subject to the conditions of section 404 of the Code.

Sec. 6. National Office Review of Determination Letters

All determination letters issued by District Directors under the procedures herein are subject to post review in the National Office, under the jurisdiction of the Assistant Commissioner (Technical). If, during the course of review, a determination letter does not appear to conform to the published positions of the Service, the District Director will be advised of the exceptions noted. If the taxpayer protests the exceptions taken by the National Office, the matter will be returned to the National Office. The determination letter and the protest will be treated as a request for technical advice. The procedures in Revenue Procedure 69-2, page 386, this Bulletin, will be followed.

Sec. 7. Reference of Matters to the National Office

.01 Revenue Procedure 69-2 defines technical advice as advice or guidance furnished upon request of a field official in connection with the examination or consideration of a return of a taxpayer. Although a taxpayer may request a determination letter on the qualification of its plan or trust under section 401(a) of the Code prior to the filing of any return affected by the plan or trust, the consideration or examination of the facts relating to the qualification, amendment, curtailment, or termination of the plan or relating to the exempt status of the trust will be considered to be in connection with the examination or consideration of a return of the taxpayer. Thus, a District Director may request technical advice on issues which arise as the result of requests for determination letters of the type discussed in this Revenue Procedure.

.02 Where issues arise in a District Director's office on matters within the contemplation of section 3.01, and the district office does not request technical advice from the National Office, the organization may notify the District Director that it intends to request National Office consideration. The notice will consist of a copy of the request that the organization intends to file with the National Office. See section 7.04 below. Should the District Director make an adverse determination, or should no action be taken within 30 days after the notice is filed with the District Director, the request may be filed with the National Office.

.03 Requests for National Office consideration will be entertained upon a clear showing--

1 That the position of the district office is contrary to the law or regulations on the points at issue;

2 That the position of the district office is contrary to the position of the Service as set forth in a Revenue Ruling currently in effect;

3 That the position of the district office is contrary to a court decision that is followed by the Service, i.e., acquiescence in an adverse Tax Court decision;

4 That the contemplated district office action is in conflict with a determination made in a similar case in the same or another district; or

5 That the issues arise because of unique or novel facts that had not previously been passed upon, in any published Revenue Ruling or announcement.

.04 The request to the National Office must show the following:

1 Date of request;

2 Name and address of taxpayer (employer) and name and address of representative, if any, who has been authorized to represent taxpayer (see section 6.06 of Revenue Procedure 69-1);

3 District office in which the case is pending;

4 Type of plan (pension, annuity, profit-sharing, stock bonus) and type of action involved (initial qualification, amendment, curtailment, termination, or investment);

5 Date of filing a copy of this request with the District Director and the date and symbols of determination letter, if any;

6 A concise statement of the issues without presentation of the facts or argumentation e.g., whether a limitation may be imposed on employer contributions used to provide benefits for stockholder-employees;

7 Grounds for requesting National Office consideration, e.g., action of the district office contrary to law or regulations (cite sections involved), contrary to published precedent (cite), conflict between districts or in some district (give name and district of case in conflict), unique or novel facts (describe briefly);

8 Whether the applicable information required by section 4 has been filed with the District Director; and

9 Whether a conference is desired in the National Office.

.05 Upon receipt of the request in the National Office, a determination will be made as to whether the case is to be considered at the National Office, and the taxpayer will be advised of this determination. If the National Office determines that it will consider the case, the file will be called in from the district office and the taxpayer will be afforded an opportunity to furnish a statement on the points at issue and to a conference in Washington, if such a conference was requested. Copies of all written submissions are to be furnished the District Director. The District director will have an opportunity to make such comments to the National Office as he deems appropriate. After full consideration of the entire file, including any conference discussion, the National Office will notify the taxpayer of its determination, and the case file will be returned to the district office for appropriate disposition in accordance with the National Office determination. The procedures of Revenue Procedure 69-2 will control, to the extent they are not inconsistent with the provisions of this section.

.06 Should a District Director determine that an organization of the type described in section 4.06 above is not an association taxable as a corporation or that the proper employer-employee relationship does not exist between the organization and its associates, the District Director will so advise the organization. Inasmuch as the primary issue here is not the qualification of the plan under section 401(a) of the Code, the appeals procedures of sections 7.02 through 7.05 are not applicable.

Sec. 8. Prohibited Transactions

.01 Section 503 of the Code denies exemption to certain organizations that engage in transactions of the type described therein. The National Office may issue a ruling as to whether a trust has entered into, or proposes to enter into, a prohibited transaction, but, except as provided in section 8.02 below, a ruling will not be issued where the determination is primarily one of fact, e.g., market value of property, reasonableness of compensation, etc. Also, no rulings or determination letters will be issued concerning such transactions as sales and leasebacks, gifts and leasebacks, and other rental transactions of real or personal property directly or indirectly with the creator, or a related or controlled interest.

.02 Where the adequacy of the security for a loan is involved, a ruling may be issued, but only if there is a clear indication of value which can be established by reference to recognized sources without requiring physical valuation or appraisal. The following are examples of transactions where the adequacy of security can be established by reference to recognized sources:

1 A surety bond issued by a recognized surety company doing a surety bond business under applicable state law;

2 An assignment of an insurance contract having a cash surrender value sufficient to cover the loan, interest, and possible costs of collection;

3 A first mortgage on real property in an amount not in excess of 50 percent of its assessed value for local tax purposes; or

4 Collateral represented by securities listed on a recognized exchange of an aggregate value equal to twice the amount of the loan.

Such rulings will be issued only on proposed transactions and on completed transactions where the return for the first year for which the transaction is effective has not been filed or the filing date has not passed. This section does not preclude the National Office from ruling as to whether a transaction is within the purview of section 503(c), (h), or (i) of the Code.

.03 If, upon examination of the return or returns of a trust, or on the basis of information from other sources, a District Director is of the opinion that a trust has entered into a prohibited transaction, the trust will be advised in writing that it is proposed to revoke its exemption, and the reasons for such proposed action. The district office will also advise the trust of its right to protest the proposed action by submitting a statement of the facts, law, and arguments in support of its continued exemption, and of its right to a conference in the district office.

.04 If the trust agrees with the proposed action, either before or after the conference, or if no protest is filed, the District Director will advise the organization in writing of the revocation of the exempt status.

.05 If, after considering the information submitted by the trust, both in writing and in conference, the district office is still of the opinion that the exemption should be revoked, and the trust does not agree, the findings of district office will be forwarded to the National Office for consideration prior to further action. Such reference to the National Office will be considered a request for technical advice and the procedures in Revenue Procedure 69-2 will be followed.

.06 If it is concluded that a prohibited transaction was entered into for the purpose of diverting corpus or income from its exempt purpose and if the transaction involved a substantial part of the corpus or income of the trust, its exemption is revoked, effective as of the beginning of the taxable year during which the prohibited transaction was commenced. In all other prohibited transaction cases, however, its exemption is revoked, effective as of the beginning of the first taxable year after the date of the revocation letter. Under these circumstances, a revocation letter is sent by registered or certified mail to the last known address of the organization.

.07 The trust will usually be permitted to submit its brief and to be heard in conference before final action is taken. However, the District Director may, in his discretion, issue the revocation letter prior to the receipt of the brief or prior to granting a conference. If it is later determined that the revocation was in error, it will be rescinded as of the date it was issued.

.08 A trust that is denied exemption under section 503 of the Code may file a new claim for exemption in any taxable year following the taxable year in which the notice of denial was issued. But it may not be granted a new exemption before the beginning of the first taxable year following the year in which its new claim is filed. Thus, if a revocation notice is issued in 1968, the trust may not file a new claim for exemption until 1969, and the new exemption may not be granted for a taxable year prior to 1970. If the trust does not file a new claim until 1970, the new exemption may not be granted for a year prior to 1971.

.09 District Directors have the authority to determine that a trust will not knowingly again engage in a prohibited transaction and that the trust also satisfies all other requirements under section 401(a) of the Code, and to notify such trust of the reestablishment of its exemption.

Sec. 9. Oral Advice to Taxpayers

.01 In conformity with the general principle announced in section 12 of Revenue Procedure 69-1, district officials will not ordinarily confer with taxpayers or their representatives on matters regarding the formation or qualification of pension or similar plans, or related matters, including amendments or curtailments to approved plans, prior to the submission of a plan, amendment, or curtailment for a determination.

.02 A District Director may grant such a conference upon written request from a taxpayer or his representative, provided the request shows that a substantive plan, amendment, etc., has been developed for submission to the Service, but that special problems or issues are involved, and the District Director concludes that such a conference would be warranted in the interest of facilitating review and determination when the plan, etc., is formally submitted.

.03 The furnishing of advice or assistance, whether requested by personal appearance, telephone, or correspondence, except as otherwise provided in section 9.02 above, will be limited to general procedures, or will direct the inquirer to source material, such as pertinent Code provisions, regulations, Revenue Procedures, and Revenue Rulings that may aid the inquirer in resolving his question or problem.

Sec. 10. Effect on Other Documents

.01 Revenue Procedure 67-4, C.B. 1967-1, 565, is superseded.

.02 The general procedures of Revenue Procedure 69-1 are applicable to requests for rulings and determination letters, except that where such requests involve the qualification of plans under sections 401(a) and 405(a) of the Code, the tax-exempt status of related trusts under section 501(a), and related problems, the procedures of this Revenue Procedure apply.

Sec. 11. Effective Date

This Revenue Procedure is effective January 6, 1969, the date of its publication in the Internal Revenue Bulletin.