Rev. Proc. 72-6

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 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 include self-employed individuals, see Revenue Procedure 72-7, page 715, this Bulletin. For procedures relating to master and prototype plans that do not include self-employed individuals, see Revenue Procedure 72-8, page 716, 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 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 nontrusted 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 the Revenue Procedure 72-3, page 698, 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 72-3 are limited to the qualification of plans or trusts under section 401 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 72-3. 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 Rev. Rul. 69-494, C.B. 1969-2, 88.

Sec. 4. Instructions to Taxpayers

.01 All of the provisions of section 6 of Revenue Procedure 72-3 are applicable to requests for determination letters of the type discussed in this Revenue Procedure. In addition, an employer requesting a determination letter should file with the District Director specified in section 4.08 below the appropriate application form required by section 4.02 through 4.06. The filing of such application, when accompanied by copies of all documents, including the plan and trust or custodial agreement and specimen insurance contracts, if applicable, will generally serve to provide the Service with the information required by section 1.404(a)-2 of the Income Tax Regulations. However, in making the determination, the Service may require the submission of additional information.

.02 If the request relates to the initial qualification of an individually designed plan, a subsequent amendment thereto, or compliance with the requirements for a foreign situs trust, the employer should (1) if the plan does not include self-employed individuals, file Form 4573, Application for Determination-Individually Designed Plan (not covering self-employed individuals), or (2) if the plan includes self-employed individuals, file Form 4574, Application for Determination-Individually Designed Plan Covering Self-Employed Individuals, except that where a bond purchase plan includes a self-employed individual, file Form 4578, Application for Approval of Bond Purchase Plan.

.03 If the request involves an investment of trust funds in the stock or securities of the employer, the employer or trustee should file Form 4575, Application for Determination-Investment of Trust Funds in Stocks or Securities of Employer.

.04 If the request involves a curtailment or termination of the plan (or complete discontinuance of contributions), the employer should file Form 4576, Application for Determination-Termination or Curtailment of Plan. This form will also be applicable to the termination of a plan that includes self-employed individuals. Trusts must file Form 966-E, Liquidation, Dissolution, Termination or Substantial Contraction of Organizations Exempt under Section 501(a), unless the employer who established the plan and trust files such form.

.05 An association of employers or a board of trustees should file Form 4577, Application for Determination-Industry-Wide Plan and Trust, if the request relates to the initial qualification or subsequent amendments of an industry-wide or area-wide union-negotiated plan.

.06 If the request relates to the qualification of a bond purchase plan, file Form 4578, Application for Approval of Bond Purchase Plan that Includes Self-Employed Individuals. When properly completed, Form 4578 will constitute a bond purchase plan.

.07 When, in connection with an application for a determination on the qualification of the plan, it is necessary to determine whether an organization (including a professional service organization) is a corporation or an association classified as a corporation under section 301.7701-2 of the Regulations on Procedure and Administration, and whether an employer-employee relationship exists between it and its associates, the District Director will make such determination. In such cases, the application with respect to the qualification of the plan should be filed in accordance with the provisions herein set forth and should contain the information and documents specified in the application. It should also be accompanied by such information and copies of documents as the organization deems appropriate to establish its status. The Service may, in addition, require any further information that is considered necessary to determine the status of the organization, the employment status of the individuals involved, or the qualification of the plan. After the taxable status of the organization and the employer-employee relationship have been determined, the District Director may issue a determination letter as to the qualification of the plan.

.08 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 his 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 4.07 above, the organization will address its request to the District Director who has or will have audit jurisdiction over its return.

Sec. 5. Effect of Pension Trust Determination and Opinion Letters

.01 Determination letters issued pursuant to the provisions of this Revenue Procedure contain only opinions as to the qualification of plans under sections 401 and 405 of the Code and the status of related trusts under section 501(a). Except as otherwise provided in this section such letters are governed, generally, by the provisions of sections 13 and 14 of Revenue Procedure 71-3.

.02 Determination letters issued on amendments to plans and trusts within the purview of section 3.013 of this Revenue Procedure, will merely express an opinion on whether the amendment, in and of itself, affects the existing status of the plan's qualification under section 401 of the Code and the exempt status of the related trust under section 501(a). In no event should such a determination letter be construed as an opinion on the qualification of the plan as a whole and the exempt status of the related trust as a whole.

.03 Except as otherwise provided in this section, determination letters referred to in .01 and .02 above are governed, generally, by the provisions of sections 13 and 14 of Revenue Procedure 72-3.

.04 The prior qualification of a pension, annuity, profit-sharing, or stock bonus plan will not be considered to be adversely affected by the publication of a Revenue Ruling where (1) the plan was the subject of a favorable determination letter and the request for that letter contained no misstatement or omission of material facts, (2) the facts subsequently developed are not materially different from the facts on which the determination letter was based, (3) there has been no change in the applicable law, and (4) the employer that established the plan acted in good faith in reliance on the determination letter. However, all such plans must be amended to comply with the published Revenue Ruling for subsequent years. The conforming amendment must be adopted before the end of the first taxable year that begins after the Revenue Ruling is published and must be effective, for all purposes, not later than the first day of the first taxable year beginning after the Revenue Ruling is published.

.05 Where an employer has merely adopted a master or prototype plan that provides benefits for self-employed individuals, the prior qualification of the plan will not be adversely affected by the publication of a Revenue Ruling if (1) the master or prototype plan was the subject of an opinion letter that held the plan to be acceptable as to form, (2) the employer has observed the provisions of the plan, and (3) the eligibility requirements and contributions or benefits under the plan are not more favorable for owner-employees than for other employees, including any employees required to be covered under plans of all businesses controlled by such owner-employees.

.06 Regardless of whether a master or prototype plan is of the corporate or self-employed type, the required conforming amendment can be made by the individual employer (in which case the employer's plan would cease to be a master or prototype plan) or by the sponsor of the plan on behalf of all adopting employers. Where a master or prototype plan has been adopted by several employers with taxable years beginning on different dates, the adopting employers will be protected if the conforming amendment by the sponsor is made within one year after the publication of the Revenue Ruling that necessitates the amendment, and is effective, for all purposes, with the first taxable year of the employer beginning after the Revenue Ruling is published.

.07 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 72-2, page 695, this Bulletin will be followed.

Sec. 7. Reference of Matters to the National Office

.01 Revenue Procedure 72-2 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, 405(a), or both, 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. The request, where an adverse determination is made, must be filed within 30 days after the date of the determination letter.

.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 72-3);

(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 same 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 72-2 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 4.07 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(b), (e), or (f) 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 the 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 72-2 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 1970, the trust may not file a new claim for exemption until 1971, and the new exemption may not be granted for a taxable year prior to 1972. If the trust does not file a new claim until 1972, the new exemption may not be granted for a year prior to 1973.

.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 set forth in section 12 of Revenue Procedure 72-3, 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 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 69-4, C.B. 1969-1, 391, Revenue Procedure 70-9, C.B. 1970-1, 435, and PS 35 (Revised), November 16, 1944, are superseded.

.02 The general procedures of Revenue Procedure 72-3 are applicable to requests for rulings and determination letters except that where such requests involve the qualification of plans under sections 401 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 3, 1972, the date of its publication in the Internal Revenue Bulletin.