SERVICE ANNOUNCES GUIDELINES FOR CLAIMING DEFINED BENEFIT PLAN EXCESS ASSET REVERSIONS.

Rev. Proc. 89-35

SECTION 1. PURPOSE AND SCOPE

01 The purpose of this revenue procedure is to set forth a procedure by a which a plan administrator or plan sponsor of a qualified defined benefit pension plan may under certain circumstances satisfy the requirement that a deduction under section 404 of the Code be disallowed by the Secretary of the Treasury, thereby fulfilling a condition under which a contribution may revert to the employer without adversely affecting the plan's qualified status.

02 This revenue procedure applies only to employer contributions to a qualified defined benefit pension plan that are made for a plan year beginning in 1988 (i.e., the 1988 plan year), or that are made to satisfy the quarterly contributions requirement of section 412(m) of the Code for the first plan year beginning after December 31, 1988 (see section 5).

03 In general, contributions to which this revenue procedure applies must be effectively disallowed by obtaining a ruling letter, as described in subsection .06 of section 3 and in section 4 of this revenue procedure, before the nondeductible contributions may be returned to the employer.

SEC. 2. BACKGROUND INFORMATION

01 Section 401(a)(2) of the Internal Revenue Code generally requires a trust forming part of a pension, profit-sharing, or stock bonus plan to prohibit the diversion of corpus or income for purposes other than the exclusive benefit of the employees or their beneficiaries.

02 Section 412(m) of the Code provides that for plan years beginning after December 31, 1988, quarterly estimated contributions must be made to any plan (other than a multiemployer plan) that is subject to the minimum funding requirements of section 412.

03 Section 4972 of the Code provides that a 10 percent tax is to be imposed on nondeductible plan contributions. However, the section 4972 tax does not apply to the extent that contributions are returned to the taxpayer no later than the time prescribed by law for filing the tax return for such taxable year (including extensions filed for and granted).

04 In Rev. Rul. 77-200, 1977-1 C.B. 98, the Service held that plan language providing for the return of employer contributions under certain limited circumstances may be included in a plan intended to qualify under the Internal Revenue Code. One of those circumstances addresses situations in which the employer contribution is conditioned on its deductibility under section 404 of the Code and the deduction is disallowed by the Secretary of the Treasury. Under Rev. Rul. 77-200, the return to the employer must take place within one year from the date of disallowance of the deduction.

05 Rev. Proc. 83-36, 1983-1 C.B. 763, as modified by Rev. Proc. 87-40, 1987-2 C.B. 514, sets forth the general procedures of the Service relating to the issuance of rulings, determination letters, opinion letters, and notification letters on employee plans and exempt organization matters.

06 Rev. Proc. 89-4, 1989-3 I.R.B. 18, sets forth the procedures relating to the payment of user fees for requests to the Service for rulings, opinion letters, determination letters, and similar requests.

07 Notice 89-52, 1989-19 I.R.B. 142, provides guidance with respect to the quarterly estimated payments required by section 412(m). In addition, in light of the uncertainty asserted by taxpayers about the effective date of the change to a 5-year amortization period for experience gains and losses for calendar year plans, it provides limited relief under which an employer may apply a transitional rule.

SEC. 3. REQUESTS FOR RULING LETTERS TO DISALLOW THE DEDUCTIBILITY OF A CONTRIBUTION

01 Who may Submit -- Only a plan administrator (within the meaning of section 414(g) of the Code), plan sponsor, or the authorized representative of either may make a request for a determination that the employer contribution to which this revenue procedure applies would be nondeductible if claimed as a deduction for purposes of determining whether such contribution may be returned to the employer in accordance with Rev. Rul. 77-200 without adversely affecting the qualified status of the plan.

02 Where to Submit -- Such requests with the appropriate user fee for a ruling pursuant to Rev. Proc. 89-4 shall be submitted to the Internal Revenue Service; Assistant Commissioner (Employee Plans and Exempt Organizations); Attention: E:EP:PA, P.O. Box 14073, Ben Franklin Station; Washington, D.C. 20044. The request must be made no later than 2-1/2 months after the close of the plan year for which the disallowance of the deductibility of the employer contribution is requested or, if later, 120 days after publication of this procedure.

03 Procedure Rules -- The request must satisfy all of the requirements of Rev. Proc. 83-36, 1983-1 C.B. 763, including deletion instructions in compliance with section 6110 of the Code. Also, attention is called to section 7.10 of Rev. Proc. 83-36, which provides that a request for a ruling to which section 6110 of the Code applies must contain a declaration in the following form: "Under the penalties of perjury, I declare that I have examined this request, including accompanying documents, and to the best of my knowledge and belief, the facts presented in support of the request are true, correct, and complete." This declaration must be signed by the taxpayer (e.g., an authorized officer of a corporation). The signature of an individual with a power of attorney will not suffice for the declaration.

04 Information Required -- In addition to any information required by Rev. Proc. 83-36, the following information shall accompany the request:

(1) The location of the office of the District Director of Internal Revenue having jurisdiction over the plan, the employer identification number, the plan name and number, and the name and address of the plan administrator or plan sponsor.

(2) A copy of each of the last two actuarial valuation reports, and a copy of each of the last two Schedules B of Form 5500, including attachments thereto, that have been filed with the Internal Revenue Service.

(3) The plan year for which the request is made (e.g., January 1, 1988 - December 31, 1988).

(4) A list of the employer contributions actually paid in each month, from the twenty-fourth month prior to the beginning of the plan year for which the disallowance is requested through the date of the request and the plan year to which the contributions were applied.

(5) A worksheet, signed by the enrolled actuary for the plan, showing how the amount of the reversion due to the employer as a result of the disallowance of the deduction of the employer contribution will be determined, and an explanation of why the contribution is not deductible. The maximum amount which may be returned to the employer is the excess of (1) the amount contributed over (2) the amount that would have been contributed had the contribution been limited to the amount that is deductible. Earnings attributable to the excess contribution may not be returned to the employer, but losses attributable thereto must reduce the amount to be so returned.

(6) A copy of the current plan document and a copy of the most recent summary plan description.

(7) Documentation must be provided that employer contributions are conditioned on deductibility. A copy of a board resolution will suffice for such documentation as will plan language providing that employer contributions are conditioned on deductibility.

(8) A reference to the appropriate section in the plan document which permits the return of employer contributions.

(9) A copy of the most recent determination letter issued to the plan.

05 The Service may request additional information as needed.

06 Approval Letter.

(1) If the request described in section 3.01 is approved, a form letter will be issued. A copy of this approval letter must be attached to the Schedule B of the Form 5500 that is filed for the plan year for which the disallowance is effective (see Appendix I -- Form Letter). The form letter will contain the caveat that the Service has considered the disallowance of employer contributions solely for the purposes of applying Rev. Rul. 77-200.

(2) The National Office will send a copy of the form letter to the Key District Director having jurisdiction over the plan.

SEC. 4. SPECIAL RULES FOR A PLAN YEAR COMMENCING IN 1988

For a ruling request for a plan year beginning in 1988, special rules of this section will apply. The National Office within 90 days from the receipt of a complete request will either contact the applicant to obtain more information or will issue a form letter approving the request with respect to employer contributions made to the plan for the plan year commencing in 1988. To expedite processing for 1988 plan years, taxpayers should specify in the upper right-hand corner of their requests the words "Rev. Proc. 89-35". If an approval letter is issued, a copy of the form letter must be attached to the next Schedule B of the Form 5500 filed (see Appendix I -- Form Letter).

SEC. 5. EFFECTIVE DATE

This revenue procedure is effective for contributions made for a plan year commencing in 1988, or for contributions made to satisfy the quarterly installments requirement for a plan year commencing on or after January 1, 1989, but not after December 31, 1989.

SEC. 6. DRAFTING INFORMATION

The principal author of this revenue procedure is Linda Cox of the Employee Plans Technical and Actuarial Division. For further information regarding this revenue procedure, please contact the Employee Plans Technical and Actuarial Division's taxpayer assistance telephone service between the hours of 1:30 p.m. and 4:00 p.m., Eastern Time, Monday through Friday on (202) 566-6783/6784 (not a toll-free number). Ms. Cox's telephone number is (202) 566-4375 (also not a toll-free number).

                   Significant Index No. 0404.00-00

This letter is in response to your request with respect to the above-referenced defined benefit pension plan pursuant to Revenue Procedure 89-35 for the plan year commencing __________.

Rev. Proc. 89-35 sets forth the procedure whereby, under certain circumstances, a disallowance of the deduction of employer contributions to a qualified defined benefit pension plan may be obtained, thereby fulfilling a condition under which such contributions could revert to the employer.

Based upon the information submitted, we have determined that contributions amounting to $_____ which were made for the plan year commencing _____ may be considered as disallowed solely for the purposes of applying Rev. Rul. 77-200. Therefore, the return of contributions not exceeding $_____ would not adversely affect the qualified status of the plan, provided such reversion occurs no later than one year from the date of this letter. (However, if it is not returned by your tax filing date, including extensions filed for and granted, the tax under section 4972 would apply.) In granting this approval, we are not expressing any opinion as to the accuracy or acceptability of any calculations or other material submitted with your request.

When filing Form 5500 for the plan year commencing _____, a copy of this letter must be attached to the Schedule B (Actuarial Information). A copy of this letter should be furnished to the enrolled actuary for the plan. We have sent a copy to the Key District Director in _____.

                                   Sincerely yours,