Rev. Proc. 71-19

Section 1. Purpose.

The purpose of this Revenue Procedure is to set forth the conditions, or circumstances, under which the Internal Revenue Service will issue advance rulings concerning the application of the doctrine of constructive receipt to unfunded deferred compensation arrangements.

Sec. 2. Background.

In 1960, the Internal Revenue Service issued Revenue Ruling 60-31, C.B. 1960-1, 174, to provide guidelines concerning the application of the doctrine of constructive receipt to certain deferred compensation arrangements. Revenue Ruling 60-31 was modified by Revenue Ruling 64-279, C.B. 1964-2, 121, and Revenue Ruling 70-435, C.B. 1970-2, 100.

Sec. 3. Requests For Rulings.

In each case involving a deferral of compensation, a determination of whether the doctrine of constructive receipt is applicable may be made only after consideration of the specific factual situation involved. A ruling letter will be issued concerning unfunded deferred compensation arrangements only if the plan meets the following requirements:

.01 If the plan provides for an election to defer payment of compensation, such election must be made before the beginning of the period of service for which the compensation is payable, regardless of the existence in the plan of forfeiture provisions.

.02 If any elections, other than the initial election referred to in .01 above, may be made by an employee subsequent to the beginning of the service period the plan must set forth substantial forfeiture provisions that must remain in effect throughout the entire period of the deferral. A substantial forfeiture provision will not be considered to exist unless its conditions impose upon the employee a significant limitation or duty which will require a meaningful effort on the part of the employee to fulfill and there is a definite possibility that the event which will cause the forfeiture could occur.

Sec. 4. Instructions.

The general procedures of Revenue Procedure 69-1, C.B. 1969-1, 381, relating to the issuance of rulings and determination letters are applicable to requests relating to unfunded deferred compensation arrangements to the extent not covered by this Revenue Procedure.

Sec. 5. Effective Date.

This Revenue Procedure is effective on June 21, 1971, the date of its publication in the Internal Revenue Bulletin.