IRS EXTENDS REV. PROC. 89-35, ON REVERSIONS OF NONDEDUCTIBLE DBP CONTRIBUTIONS, TO POST-1989 PLAN YEARS.

Rev. Proc. 90-49

SECTION 1. Purpose and Scope.

01 The purpose of this revenue procedure is to modify and replace Rev. Proc. 89-35, 1989-1 C.B. 917, in order to extend the effective date to contributions made for plan years beginning after December 31, 1989, to change the deadline for requesting rulings under the revenue procedure, to revise the information requirements for a ruling request made under the revenue procedure, to furnish a worksheet for actuarial computations, and to provide a special rule under which certain de minimis nondeductible employer contributions to a qualified defined benefit plan may be returned to the taxpayer without a formal ruling or disallowance from the Service.

02 This revenue procedure applies to employer contributions to a qualified defined benefit pension plan that are made to satisfy the quarterly contributions requirement of section 412(m) of the Code for the plan years beginning after December 31, 1989 (see section 5).

03 In general, contributions to which this revenue procedure apply must be effectively disallowed by obtaining a ruling letter, as described in section 3.06 of this revenue procedure, before the nondeductible contributions may be returned to the employer. However, there is an exception for contributions described in section 4.

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. 90-4, 1990-2 I.R.B. 10, 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. 90-17, 1990-12 I.R.B. 13, 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. (The user fee for a request under this revenue procedure is $100 pursuant to section 6.03 of Rev. Proc. 90-17.)

07 Notice 89-52, 1989-1 C.B. 692, provides guidance with respect to the quarterly estimated payments required by section 412(m).

08 Rev. Proc. 89-35, 1989-1 C.B. 917, sets forth a procedure by 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 nondeductible contributions made for the plan year beginning in 1988 or made to satisfy the quarterly contributions requirement of section 412(m) of the Code for the first plan year beginning after December 31, 1988, may revert to the employer without adversely affecting the plan's qualified status. Rev. Proc. 89-35 did not apply to plan years commencing after December 31, 1989.

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, DC 20044. The request must be made no later than the later of (1) 2-1/2 months after the close of, or (2) 6 months after the valuation date which has or will be reported on the Schedule B of Form 5500 for, the plan year for which the disallowance of the deductibility of the employer contribution is requested.

03 Procedural Rules -- The request must satisfy all of the requirements of Rev. Proc. 90-4, 1990-2 I.R.B. 10, including deletion instructions in compliance with section 6110 of the Code. Also, attention is called to section 8.02 of Rev. Proc. 90-4 which provides that a request for a ruling 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. 90-4, 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 the last actuarial valuation report, and a copy of the last Schedule B of Form 5500, including attachments thereto, that has been filed with the Internal Revenue Service.

(3) The plan year for which the request is made (e.g., January 1, 1990 -- December 31, 1990).

(4) A list of the employer contributions actually paid in each month, from the twelfth 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, following the format of the worksheet included as Appendix II of this revenue procedure. This worksheet includes the calculation of the full funding limitation, the amount of the reversion due to the employer as a result of the disallowance of the deduction of the employer contribution, and a certification by the enrolled actuary attesting to the accuracy of this information. 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 reference to the appropriate section in the plan document which permits the return of employer contributions.

(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 statement as to whether the contributions for which a disallowance is being requested have been deducted on any tax return of the employer.

05 Within 90 days from the receipt of a complete request, the National Office will either contact the applicant to obtain more information or will issue a form letter approving the request.

06 The Service may request additional information as needed.

07 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 purpose 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.

08 If the request for the disallowance of a nondeductible employer contribution is approved under this revenue procedure, and if the contribution in question is returned to the employer before the Schedule B for the plan year in which the contribution was made is filed, the contribution is not reported on the Schedule B. If the nondeductible contribution is returned to the employer after the Schedule B for the plan year in question is filed, the contribution most be reported and credited under section 412 of the Code on that Schedule B. However, the nondeductible contribution for which the funding standard account was credited under section 412 creates an offsetting charge to the funding standard account on the Schedule B for the year in which the nondeductible contribution is returned.

SEC. 4. Special Rules for De Minimis Nondeductible Contributions.

01 Employer contributions to a qualified defined benefit plan that are conditioned on deductibility may be treated as disallowed by the Secretary of the Treasury if they are treated as de minimis under section 4.02 and if the conditions on actuarial certification under section 4.03 are satisfied. This treatment is solely for the purpose of applying Rev. Rul. 77-200 to allow the return of the nondeductible contribution to the employer.

02 A nondeductible contribution is not considered de minimis unless the requirements listed below are satisfied.

(1) The amount of the nondeductible contributions is less than $25,000.

(2) The terms of the plan must specifically allow for the return of contributions to the employer if they are determined by the Service to be nondeductible.

(3) Prior to, or concurrent with, the date when the nondeductible contribution is made to the plan, the contribution is specifically conditioned on deductibility in writing either (i) in the plan or (ii) in the plan in combination with a certified corporate board resolution. A contribution is not treated as specifically conditioned on deductibility unless the plan language or board resolution conditioning the contributions explicitly states that the contributions in question ARE conditioned on deductibility. For example, plan language stating that nondeductible contributions MUST or SHALL be returned to the employer meets requirement (3)(i). However, plan language stating that nondeductible contributions may be returned to the employer must be combined WITH a board resolution that specifically conditions the contributions on deductibility to meet requirement (3)(ii).

03 A contribution may not be returned to the taxpayer unless the actuarial certification requirements of this section are satisfied. An actuarial certification that a return of the nondeductible contribution is appropriate must be signed by the enrolled actuary for the plan. This actuarial certification must follow the form of the actuarial worksheet set forth in section 3.04(5) and included in Appendix II of this revenue procedure. The return of the nondeductible contribution must be made no later than one year from the date of the certification. If not returned by the employer's tax filing date, including extensions filed for and granted, the tax under section 4972 of the Code would apply.

04 A copy of this actuarial certification, as well as a copy of the applicable plan language or board resolution, must be attached to the Schedule B of the Form 5500 that is filed for the plan year in which the nondeductible contribution was made. The employer who receives the return of contributions must also attach a certification to the Schedule B. The employer must certify that the contributions which are being returned have not been deducted on a tax return of the employer or, if deducted, an amended return has been filed.

05 Plan sponsors, plan administrators, and plan trustees who make use of this de minimis rule are cautioned that the requirement that the contributions have been conditioned (at or prior to the time they were made) on deductibility must be satisfied. Thus, for example, plan contributions must be expressly conditioned on deductibility at the time made, unless the terms of the plan specify that all contributions are conditioned on deductibility. A return of contributions that were not properly conditioned on deductibility will result in the loss of plan qualification under section 401 of the Code.

SEC. 5. Effective Date.

This revenue procedure is effective for contributions made to satisfy the quarterly installments requirement for a plan year commencing on or after January 1, 1990.

SEC. 6. Effect on other Revenue Procedures

Rev. Proc. 89-35 is superseded.

SEC. 7. Drafting Information.

The principal author of this revenue procedure is John Heil 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 pm., Eastern Time, Monday through Thursday on (202) 566-6783/6784 (not a toll-free number). Mr. Heil's telephone number is (202) 566-3199 (also not a toll-free number).

APPENDIX I -- FORM LETTER

Significant Index No. 0404.00-00

                                   In re: Plan Name

Rev. Proc. 90-49 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 purpose of applying Rev. Rul. 77-200. Therefore, the return of contributions not exceeding $_______ would not adversely affect the qualified status of the plan, provided this 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,