Rev. Proc. 85-43

Rev. Proc. 85-43

SECTION 1. PURPOSE

01 This revenue procedure supersedes the procedures set forth in Rev. Proc. 81-12, 1981-1 C.B. 652, in light of sections 414(m)(5) and 414(n), added to the Internal Revenue Code by the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. 97-248, 1982-2 C.B. 462.

02 This revenue procedure prescribes the procedures relating to the qualification, under section 401(a) or 403(a) of the Code, of an employees' pension, profit-sharing, stock bonus, or annuity plan established or maintained by (1) an employer that is, or may be, a member of an affiliated service group within the meaning of section 414(m) of the Code, or (2) an employer that utilizes the services of leased employees within the meaning of section 414(n) of the Code.

03 Under this revenue procedure the National Office of the Internal Revenue Service will not issue rulings on whether particular entities are members of an affiliated service group within the meaning of section 414(m) of the Code, unless the ruling request was submitted before the effective date of this revenue procedure.

SEC. 2. BACKGROUND

01 APPLICABLE LAW PRIOR TO TEFRA. Section 414(m) of the Code as originally added by the Miscellaneous Revenue Act of 1980, Pub. L. 96-605, 1980-2 C.B. 702, provides that for purposes of certain employee benefit requirements including sections 401(a), 408(k), 410, 411, and 415 of the Code, employees of an affiliated service group, as defined in section 414(m), shall be treated as employed by a single employer. Thus, for example, if an employer that is a member of an affiliated service group establishes or maintains an employees' pension, annuity, profit-sharing, or stock bonus plan, employees of other members of the affiliated service group must be considered employees of that member in determining whether its plan meets applicable qualification requirements of section 401(a).

02 TEFRA AND OTHER STATUTORY CHANGES. Section 414(m)(5) of the Code, as added by section 246 of TEFRA, provides that certain organizations performing management functions and the organizations for which the management functions are performed will constitute an affiliated service group even though those organizations would not have been an affiliated service group for preTEFRA years. Section 240 of TEFRA, which added section 416 of the Code relating to top-heavy plans, amended section 414(m) to provide that employees of an affiliated service group shall also be treated as employed by a single employer for purposes of section 416. Section 414(n) of the Code, as added by section 248 of TEFRA, provides that for purposes of certain employee benefit requirements under sections 401(a), 408(k), 410, 411, 415, 416, a person who is employed by an organization ("leasing organization") and performs services for another trade or business ("recipient") shall be treated as an employee of the recipient when certain requirements are met. Section 526 of the Tax Reform Act of 1984 (TRA), Pub. L. 98-369, 1984-3 C.B. (Vol. 1) 1, 382, amended section 414(m)(6)(B) of the Code so that the attribution rules for ownership under section 318(a) of the Code, instead of section 267(c), are used for determining whether a group of employers constitutes an affiliated service group.

03 IMPACT OF STATUTORY REQUIREMENTS.

1 Section 414(m) of the Code does not impact on any plan unless the employer maintaining the plan is a member of an affiliated service group. In the case of an employer that is a member of an affiliated service group, section 414(m) affects several important areas of plan qualification. For example, being a member of an affiliated service group expands the group of employees who must be considered in applying the coverage requirements of section 410(b). Also, certain form requirements are changed. This includes plan language for crediting years of service with respect to members of the affiliated service group for purposes of the minimum participation standards in section 410(a) and the minimum vesting standards in section 411. For further discussion of these requirements, see Rev. Rul. 81-105, 1981-1 C.B. 256.

2 Section 414(n) of the Code does not impact on any plan if the employer maintaining the plan directly employs all of its employees. However, any employer ("recipient") that utilizes the services of "leased employees" may be required to consider the leased employees in determining whether its plan continues to satisfy certain qualification requirements. For example, the leased employees may be required to be considered in applying the coverage requirements of section 410(b), and, once covered, the entire period for which a leased employee has performed services for the recipient must be taken into account in determining years of service for purposes of both participation and vesting under the recipient's plan.

04 APPLICABLE PROCEDURES.

1 Rev. Proc. 83-36, 1983-1 C.B. 763, sets forth for the general procedures of the Internal Revenue Service for issuing National Office rulings and opinion letters in the employee plans and exempt organizations area, and for issuance of determination letters by employee plans key district offices.

2 Notice 83-12, 1983-2 C.B. 412, provides procedures pertaining to the issuance of determination letters by employee plans key district offices on the qualification of pension, profit-sharing, and stock bonus plans that contain provisions to comply with the changes made by TEFRA.

3 Rev. Proc. 81-12, 1981-1 C.B. 652, provides procedures for obtaining rulings from the National Office regarding whether particular entities are members of an affiliated service group and procedures for obtaining termination letters from employee plans key district offices regarding the qualification of plans established or maintained by a member of an affiliated service group.

4 Rev. Proc. 80-30, 1980-1 C.B. 685, sets forth the general procedures pertaining to issuance of determination letters by employee plans key district offices on the qualification of pension, annuity, profit-sharing, and stock bonus plans involving sections 401, 403(a), 409A, and 4975(e) of the Code.

05 EFFECTIVE DATES OF SECTION 414(m) AND 414(n). Section 414(m)(1), (2), (3), (4), and (6) is effective immediately for all plans established after November 30, 1980. For plans in existence on November 30, 1980, section 414(m)(1), (2), (3), (4), and (6) is effective for plan years beginning after November 30, 1980. Section 414(m)(5) and section 414(n) are effective for taxable years beginning after December 31, 1983. Section 414(m)(6)(B), as amended by section 526 of TRA, is effective for taxable years beginning after December 31, 1984.

SEC. 3. RESPONSIBILITIES OF EMPLOYERS AND PLAN ADMINISTRATORS

01 IN GENERAL. An employer is responsible for determining at any particular time whether it is a member of an affiliated service group, and, if so, whether its plan(s) continues to meet the requirements of section 401(a) of the Code after the effective date of section 414(m), including section 414(m)(5). An employer or plan administrator also is responsible for taking appropriate action relative to their qualified plan if that employer becomes, or ceases to be, a member of an affiliated service group. An employer that is the recipient of services of leased employees within the meaning of section 414(n) of the Code also is responsible for determining at any particular time whether a leased employee is deemed an employee of the recipient for qualified plan purposes.

02 EMPLOYERS NOT AFFECTED BY SECTION 414(m) OR 414(n). An employer that is not and has not been a member of an affiliated service group, or an employer that does not and has not utilized the services of leased employees, is not required to change its qualified plan or plans to satisfy section 414(m) or 414(n) of the Code.

03 DETERMINATION LETTER PROGRAM. An employer that is subject to the provisions of section 414(m) or 414(n) of the Code may want a determination as to the effect of such provisions on the qualified status of its plan. For example, questions may arise whether certain form requirements are satisfied or coverage is adequate under section 410(b). Section 4 of this revenue procedure provides that Service key district offices will issue determination letters which consider the impact of section 414(m) or 414(n) on the qualified status of the plan. This determination letter procedure will be available (1) in the case of an initial request for a determination letter, (2) for a determination letter request on a plan amendment, and (3) in certain circumstances, even though the plan has not been amended.

SEC. 4. DETERMINATION LETTERS

01 PROCEDURES FOR OBTAINING DETERMINATION LETTERS. An employer that has adopted a new employee plan, or an employer that has amended an employee plan to satisfy section 414(m) or 414(n) of the Code, may apply for a determination letter, under Rev. Proc. 80-30 and this revenue procedure, as to the plan's qualification, taking into consideration employees of any other organization that must be treated as employees of the applicant. Also, if an employer believes that the current plan, without amendment, will satisfy the requirements of section 401(a), but the employer's affiliated service group status has changed, the plan must be submitted for a determination letter which will consider the change in status and its effect on the plan. Generally, a determination letter will cover section 414(m) or 414(n) only if the employer submits, with the appropriate determination letter application, the information specified under section 5.

02 OMISSION OF MATERIAL FACTS. Failure to properly indicate that there is or may be an affiliated service group and to provide the information specified in section 5.01 of this procedure, or failure to properly indicate that an employer is utilizing the services of leased employees and to provide the information specified in section 5.02 of this procedure, is an omission of a material fact. Such an omission will result in the applicant being unable to rely on any favorable determination letter concerning the effect of section 414(m) or 414(n) of the Code on the qualified status of the plan.

03 STATEMENT IN DETERMINATION LETTERS. If the Service considers whether the plan of an employer satisfies the requirements of section 414(m) or 414(n) of the Code, the determination letter issued to the employer will state that questions arising under section 414(m) or 414(n) have been considered, and that the plan satisfies qualification requirements relating to that section. Absent such a statement pertaining to section 414(m) or 414(n), a determination letter does not apply to any qualification issue arising by reason of those provisions of the Code.

04 MASTER AND PROTOTYPE PLAN ADOPTERS-DETERMINATION LETTERS. An employer that has adopted a master or prototype plan (including an employer that has adopted a standardized plan) that wants a determination as to the effect of section 414(m) or 414(n) of the Code on the qualified status of its plan must attach the information required by section 5 of this revenue procedure to Form 5307 (Short Form Application For Determination For Employee Benefit Plan) and submit the information. Form 5307, Form 5302 (Employee Census), and any other materials necessary to make a determination to the appropriate key district office.

05 RELIANCE ON DETERMINATION LETTERS. The failure of the adopting employer to follow the above procedures will result in the employer being unable to rely on any favorable determination letter concerning the effect of section 414(m) or 414(n) of the Code on the qualified status of the plan.

SEC. 5. REQUIRED INFORMATION

01 INFORMATION TO BE SUBMITTED WITH APPLICATIONS FOR DETERMINATION LETTERS COVERING SECTION 414(m) OF THE CODE. A determination letter issued with respect to a plan's qualification under section 401(a) or 403(a) of the Code will be a determination as to the effect of section 414(m) upon that plan's qualified status only if the application includes:

1 A description of the nature of the business of the employer, specifically discussing whether it is a service organization or an organization whose principal business is the performance of management functions for another organization, including the reasons therefor;

2 The identification of other members (or possible members) of the affiliated service group;

3 A description of the nature of the business of each member (or possible member) of the affiliated service group describing the type of organization (corporation, partnership, etc.) and indicating whether such member is a service organization or an organization whose principal business is the performance of management functions for the other group member(s);

4 The ownership interests between the employer and the members (or possible members) of the affiliated service group (including ownership interests as described in section 414(m)(2)(B)(ii) or 414(m)(6)(B) of the Code);

5 A description of services performed for the employer by the members (or possible members) of the affiliated service group, or vice versa (including the percentage of each member's or possible member's gross receipts and service receipts provided by such services, if available, and data as to whether the services are a significant portion of the member's business) and whether, as of December 13, 1980, it was not unusual for the services to be performed by employees or organizations in that service field in the United States;

6 A description of how the employer and the members (or possible members) of the affiliated service group associate in performing services for other parties;

7 A description of management functions, if any, performed by the employer for the member(s) (or possible member(s)) of the affiliates service group, or received by the employer from any other member(s) (or possible member(s)) of the group (including data as to whether such management functions are performed on a regular and continuing basis) and whether it is not unusual for such management functions to be performed by employees of organizations in the employer's business field in the United States;

8 If management functions are performed by the employer for the member(s) (or possible member(s)) of the affiliated service group, a description as to what part of the employer's business constitutes the performance of management functions for the member(s) (or possible member(s)) of the group (including the percentage of gross receipts derived from management activities as compared to the gross receipts from other activities);

9 A brief description of any other plan(s) maintained by the members (or possible members) of the affiliates service group, if such other plan(s) is designated as a unit for qualification purposes with the plan for which a determination letter has been requested;

10 A description of how the plan(s) satisfies the coverage requirements of section 410(b) if the members (or possible members) of the affiliated service group are considered part of an affiliated service group with the employer;

11 A copy of any ruling issued by the National Office on whether the employer is a member of an affiliated service group; a copy of any prior determination letter that considered the effect of section 414(m) on the qualified status of the employer's plan; and, if known, a copy of any such ruling or determination letter issued to any other member (or possible member) of the same affiliated group, accompanied by a statement as to whether the facts upon which the ruling or determination letter was based have changed.

02 INFORMATION TO BE SUBMITTED WITH APPLICATIONS FOR DETERMINATION LETTERS COVERING SECTION 414(n) OF THE CODE. Unless the plan provides that all leased employees within the meaning of section 414(n)(2) of the Code are treated as common law employees for all purposes under the plan, a determination letter issued with respect to the plan's qualification under section 401(a) or 403(a) of the Code will be a determination as to the effect of section 414(n) upon the plan's qualified status only if the application includes:

1 A description of the nature of the business of the recipient organization;

2 A copy of the relevant leasing agreement(s);

3 A description of the function of all leased employees within the trade or business of the recipient organization (including data as to whether all leased employees are performing services on a substantially full-time basis) and whether it is not unusual for the services to be performed by employees of organizations in the recipient organization's business field in the United States;

4 If the recipient organization is relying on any qualified plan(s) maintained by the employee leasing organization for purposes of qualification of the recipient organization's plan, a description of such plan(s) (including a description of the contributions or benefits provided for all leased employees which are attributable to services performed for the recipient organization, plan eligibility, and vesting).

SEC. 6. EFFECT ON OTHER DOCUMENTS

01 Rev. Proc. 83-36 and Rev. Proc. 80-30 are amplified to prescribe the additional procedures for obtaining a determination letter which considers issues arising under section 414(m) or 414(n) of the Code.

02 Notice 83-12 is amplified to provide additional information that must be submitted in a determination letter request when the applicant is a member of a management-type affiliated service group or the applicant utilizes the services of an employee(s) of an employee leasing organization.

03 Rev. Proc. 81-12 is superseded.

SEC. 7. EFFECTIVE DATE

This revenue procedure is effective August 19, 1985. As of the effective date of this revenue procedure employers may no longer request a ruling from the National Office as to whether or not they are members of an affiliated service group.