SERVICE ISSUES GUIDANCE RELATING TO ISSUANCE OF RULINGS AND OPINION LETTERS CONCERNING IRAs, SEPs, TRUSTS, AND CUSTODIAL ACCOUNTS.

Rev. Proc. 87-50

SECTION 1. PURPOSE

This revenue procedure updates and consolidates in one revenue procedure the procedures of the Internal Revenue Service relating to the issuance of rulings and opinion letters with respect to the establishment of individual retirement accounts and annuities (IRAs) under section 408 of the Internal Revenue Code, the entitlement to exemption of related trusts or custodial accounts under section 408(e), and the acceptability of the form of prototype simplified employee pension (SEP) agreements under section 408(k) and 415 of the Code. These procedures are currently set forth in Rev. Proc. 75-6, 1975-1 C.B. 646; Rev. Proc. 76-32, 1976-2 C.B. 654; Rev. Proc. 77-24, 1977-2 C.B. 532; and Rev. Proc. 80-17, 1980-1 C.B. 621.

SEC. 2. BACKGROUND AND GENERAL INFORMATION

01 Rev. Proc. 83-36, 1983-1 C.B. 763, as modified by Rev. Proc. 83-41, 1983-1 C.B. 775, and Rev. Proc. 84-86, 1984-2 C.B. 787, sets forth the general procedures of the Service relating to the issuance of rulings, determination letters, and opinion letters on Employee Plans and Exempt Organization matters.

02 Rev. Proc. 75-6 sets forth procedures pertaining to the issuance of rulings, determination letters, and opinion letters with respect to the establishment of individual retirement accounts and individual retirement annuities under section 408(a), (b) and (c) of the Code, and the entitlement to exemption of related trusts or custodial accounts under section 408(e). It also sets forth the procedures of the Service with respect to the purchase of retirement bonds pursuant to the provisions of section 409, which has since been repealed by the Tax Reform Act of 1984, Pub. L. 98-369, 1984-3 (Vol. 1) C.B. 1.

03 Rev. Proc. 76-32 modified Rev. Proc. 75-6 by transferring jurisdiction for approval of individual retirement accounts established by employers and associations of employees from the Key District Directors to the National Office and authorizing the National Office to issue rulings as to whether such individual retirement accounts meet the requirements of section 408(c) of the Code.

04 Rev. Proc. 77-24 provided guidance to sponsoring organizations that needed to revise prototype individual retirement accounts, annuity contracts, or endowment contracts to permit them to be used as spousal IRAs. It also modified Rev. Proc. 75-6 by providing for, among other things, automatic approval for certain amendments whereby IRA plan instruments were converted for use as spousal IRAs.

05 Rev. Proc. 80-17 sets forth the procedures of the Service relating to the issuance of rulings and opinion letters as to the acceptability of the form of prototype SEP agreements under sections 408(k) and 415 of the Code.

06 The Service has formulated a model trust and a model custodial account agreement that meet the requirements of section 408(a) of the Code for those individuals who wish to adopt such a program. Form 5305, Individual Retirement Trust Account, and Form 5305-A, Individual Retirement Custodial Account, are to be used for this purpose and may also be used to open a spousal IRA in the name of the spouse who signs the form. The working spouse should complete and sign the instrument covering his or her IRA, and the non-working spouse should complete and sign the instrument covering such non- working spouse's IRA. The forms are not filed with the Service. Eligible individuals who adopt a model IRA are assured that it meets the requirements of section 408(a). Because automatic approval has been granted with respect to model IRAs, no opinion letter for the Service is necessary and none will be issued.

07 The Service has also formulated a model SEP agreement that meets the requirements of section 408(k) of the Code for those employers who wish to adopt such a program. Form 5305-SEP, Simplified Employee Pension -- Individual Retirement Accounts Contribution Agreement, is used for this purpose. Eligible employers who adopt the model SEP agreement and follow its terms are assured that the model SEP meets the requirements of section 408(k). Because automatic approval has been granted with respect to model SEPs, no ruling, opinion, or determination letter from the Service is necessary and none will be issued.

08 Receipt of a favorable opinion letter on an IRA or SEP is not required as a condition of receiving favorable tax treatment.

09 The Service will not issue opinion letters on SEP agreements other than prototype agreements, and will not issue opinion letters with respect to prototype SEP-IRAs that consolidate the SEP and IRA in one document.

10 Pursuant to Notice 87-62, page ___ this Bulletin, until further notice, no opinion letters will be issued on SEPs that provide for contributions pursuant to the employee's election.

SEC. 3. OPINION LETTERS

01 The Service will issue an opinion letter, if requested by a sponsoring organization, as to whether a prototype trust or custodial account agreement meets the requirements of section 408(a) of the Code or as to whether a prototype SEP meets the requirements of section 408(k). The sponsoring organization must be a trade or professional organization (other than an employee association) having characteristics similar to those described in section 1.501(c)(6)-1 of the Income Tax Regulations, a bank (as defined in section 581 of the Code), an insured credit union (within the meaning of section 101(6) of the Federal Credit Union Act), a regulated investment company (as defined in section 851 of the Code), an investment adviser under a contract with one or more regulated investment companies, a principal underwriter that has a principal underwriting contract with one or more regulated investment companies, or a person who under regulations may act as a trustee or custodian of an IRA. Where the sponsoring organization is an insurance company, the Service will issue an opinion letter, if requested, as to whether a specific prototype individual annuity contract, within the meaning of the regulations, meets the requirements of section 408(b). Each opinion letter will bear an identifying serial number and file folder number. In the case of a SEP, a copy of the opinion letter should be furnished to employers using the approved SEP agreement.

02 The Service will not accept requests for opinion letters on spousal IRA instruments providing for the use of a single account with two subaccounts. There must be a separate accounting for the interest of each employee or member (or spouse of an employee or member).

SEC. 4. RULINGS AND DETERMINATION LETTERS

01 If an adopting employer maintains more than one SEP, or has ever maintained a qualified defined benefit plan (which is now terminated), covering any of the same employees as does the SEP, the employer may request a ruling letter as to whether the SEP (in combination with the other SEP or plans) satisfies the requirements of section 415 of the Code. The instructions set forth in Rev. Proc. 83-36 should be followed and the material submitted should include a single copy of each SEP and qualified plan.

02 Where accounts treated as individual retirement accounts are established by employers and employee associations, rulings, if requested, will be issued to the employers or associations.

03 The Service will not issue rulings or determination letters to individuals with respect to the status of their individual retirement accounts under section 408(a) of the Code or individual retirement annuities under section 408(b), or the deductibility, under section 219, of contributions under a particular program.

04 Rulings otherwise interpreting section 219 of the Code (for example, as to whether income is compensation within the meaning of section 219, or as to whether payment is timely made) will be issued in accordance with the provisions of Rev. Proc. 83-36.

05 If an employer maintains any combination of defined contribution or defined benefit plans or, in addition to any defined contribution or defined benefit plan, has ever maintained a defined benefit plan which is now terminated, and wants a determination as to whether that plan, or those plans, in combination with a SEP agreement satisfy the requirements of section 415 of the Code, the employer may apply to the appropriate district office for a determination letter under the procedures set forth in Rev. Proc. 80-30, 1980-1 C.B. 685.

SEC. 5. RELIANCE ON OPINION LETTERS AND RULINGS

01 Eligible individuals within the meaning of section 219 of the Code who adopt previously approved IRA prototype trust or custodial account agreements, or individuals who adopt the Model Trust or Model Custodial Account, will be treated as having an arrangement that meets the requirements of section 408(a). Contributions made thereunder by eligible individuals will be deductible within the limits of section 219, provided the terms and conditions of the trust or custodial account are followed.

02 Eligible individuals who purchase previously approved IRA prototype individual retirement annuity contracts will be treated as having arrangements that meet the requirements of section 408(b) of the Code. Premiums paid thereunder by eligible individuals will be deductible within the limits of section 219.

03 If a particular employer adopts a prototype SEP in accordance with the form approved by the Service and observes the provisions thereof, the affected taxpayers may rely on the opinion letter provided (a) SEP contributions are made to an Internal Revenue Service model IRA or a Service-approved prototype IRA, and (b) contributions under the SEP do not (in combination with another SEP or any terminated, qualified defined benefit plan of the employer) fail to satisfy the requirements of section 415 of the Code.

04 A sponsor of a prototype SEP must provide in the SEP that all members of an affiliated service group within the meaning of section 414(m) of the Code will be considered a single employer for purposes of determining eligibility to participate in the plan. It must also provide that any allocation under the plan will be based upon all the compensation (up to the extent permitted by law) received from all members of the affiliated service group during the year for which the allocation is made. This will assure that the adopting employers can rely upon the form of the SEP with regard to the requirements of section 414(m). The omission of such provision from the SEP will result in the adopting employers being unable to rely on the opinion letter concerning the effect of section 414(m) on the SEP.

05 If an employer maintains a master or prototype defined contribution plan, the plan currently contains language which will coordinate contributions under that plan with any other master or prototype defined contribution plan maintained by the same employer. However, such a plan does not contain language to coordinate with a SEP and may, as a consequence, not satisfy section 415 of the Code if it is maintained with a SEP.

06 An opinion letter issued on a prototype SEP may not be relied upon as to the status of any IRA; nor may an opinion letter issued with respect to any IRA prototype be relied upon as to the status of any prototype SEP.

07 Individual retirement accounts and annuities with respect to which favorable opinion letters or rulings are issued pursuant to section 3 or section 4 above may have to be amended subsequently to include or revise provisions to meet the requirements of regulations adopted after such letters have been issued.

SEC. 6. INSTRUCTIONS TO SPONSORING ORGANIZATIONS, EMPLOYERS, AND EMPLOYEE ASSOCIATIONS

01 A sponsoring organization of the type referred to in section 3.01 above that desires a written opinion as to the acceptability of the form of a prototype IRA or SEP should submit its request to the National Office. A copy of the applicable documents, including the IRA or SEP agreement, must be submitted with the request. The request should be addressed to the Commissioner of Internal Revenue, Washington, D.C. 20224, Attention E:EP:Q. Form 5306, Application for Approval of Prototype or Employer Sponsored Account, or Form 5306- SEP, Application for Approval of Prototype Simplified Employee Pension-SEP, is to be used for this purpose.

02 The IRA trust, custodial account, or annuity contract must provide a procedure for amendments so that changes in the Code, regulations, or published revenue rulings may be complied with on a group basis. If subsequent to obtaining approval of the form of program an amendment is to be made, the sponsoring organization must submit Form 5306 together with a copy of the amended trust, custodial account, or annuity contract and all other applicable documents. Upon approval, an opinion letter will be issued to the sponsoring organization.

03 Any amendment to an IRA the sole effect of which is to permit or facilitate IRA contributions up to the maximum amount deductible under current provisions of section 219 of the Code, or SEP contributions of up to the maximum amount deductible under section 404(h)(1), will not affect the status of the IRA and should not be submitted to the Service for review.

04 If an amendment is made to the form of a previously approved prototype SEP agreement, the following procedure will apply:

(1) Amendments to SEPs by sponsors will require submission of Form 5306-SEP and documentation as described under section 6.01 above together with the amendments.

(2) Upon approval by the Service, an opinion letter will be issued to the applicant, and the sponsor should send a copy of the amended SEP and opinion letter to every affected employer.

05 An employer or association of employees that desires a ruling as to whether the individual retirement account established for the benefit of its employees or members meets the requirements of section 408(c) of the Code should submit Form 5306. This procedure should be followed whether the application for approval is submitted for a new account or for an amendment to an existing account. The applications should be sent to the same address as provided in section 6.01 above.

SEC. 7. MASS SUBMITTER PROGRAM

01 Notwithstanding anything in this revenue procedure to the contrary, an opinion letter will be issued to any entity, whether or not such entity is a sponsoring organization, if such entity can establish that there are at least 10 sponsoring organizations which will sponsor the identical prototype IRA or SEP. The list of sponsoring organizations must be included with the application for the opinion letter. Such opinion letter (and any correspondence relating thereto) will only be issued to and will only apply to the mass submitter. The opinion letter may be made available by the mass submitter to individuals adopting the prototype IRA or to employers adopting the prototype SEP only if the mass submitter is also a sponsoring organization as defined in section 3.01 above. All other sponsoring organizations must obtain an opinion letter in order for the form of the IRA or SEP to be treated by the Service as a prototype IRA or SEP.

02 In order for a sponsoring organization of a prototype IRA or SEP of a mass submitter to obtain an opinion letter, the application for the opinion letter must be submitted by the mass submitter on behalf of the sponsoring organization. Such submissions may be made only after an opinion letter has been issued to the mass submitter pursuant to section 7.01 above. The first ten such submissions must contain a declaration by the mass submitter, under penalty of perjury, that the sponsoring organization has adopted a particular, word-for-word identical, prototype IRA or SEP of the mass submitter, which IRA or SEP must be identified by the letter serial number and date of the opinion letter issued to the mass submitter with respect to that IRA or SEP. A copy of the IRA or SEP must be submitted. The mass submitter on behalf of the sponsoring organization must complete all items on Form 5306 or all items on Form 5306-SEP, whichever is applicable, and the sponsoring organization must sign the completed form. In addition, if the prototype IRA or SEP replaces any other IRA(s) or SEP(s) of the sponsoring organization, the mass submitter must attach a list of the plan number(s) and file folder number(s) of the prototype IRA(s) or SEP(s) replaced. Upon receipt of the opinion letter application described above and related material (plan, adoption agreement, and power of attorney), the Service will, as soon as clerically feasible, issue an opinion letter to the mass submitter for distribution to such sponsoring organization. However, any interim correspondence relating thereto will be addressed to the mass submitter.

03 After 10 sponsoring organizations have adopted the identical IRA or SEP, other sponsoring organizations may adopt the plan word for word or with minor modifications. Requests on behalf of sponsoring organizations that have adopted the IRA or SEP with minor modifications must contain all of the material described above, and the copy of the prototype IRA or SEP for which that mass submitter received the opinion letter must have the minor modifications inserted in such a manner as to be easily identifiable. In addition, the request must contain a statement indicating the purpose and effect of each change. The mass submitter must submit the request on behalf of the sponsoring organization and must certify under penalty of perjury that the IRA or SEP of the sponsoring organization, except for the delineated changes, is word-for-word identical to the plan upon which the mass submitter received a favorable opinion letter. The Service will review the changes on a priority basis and issue an opinion letter to such sponsoring organization as soon as possible. However, any interim correspondence relating thereto will be addressed to the mass submitter.

04 Requests from mass submitters, and requests relating to the adoption of approved mass submitter IRAs and SEPs by sponsoring organizations, will be accorded more expeditious processing than requests submitted by non-mass submitters after the effective date of this revenue procedure. Where 10 or more word-for-word identical prototype IRAs or SEPs are pending with the Service as of the date of publication of this revenue procedure, the mass submitter may request that such IRAs or SEPs and any pending applications pertaining to IRAs or SEPs with minor modifications be treated as a mass submission under this revenue procedure. The request must be in writing, must identify which applications are to be so treated, and must indicate which IRA or which SEP should be designated as the mass submitter's lead case. In addition, the request must contain a declaration by the mass submitter, under penalty of perjury, with respect to each sponsoring organization covered by the mass submission that the sponsoring organization has adopted the mass submitter's prototype IRA or SEP word for word or, if that is the case, with only minor modifications. If there are minor modifications, the mass submitter's request must contain, with respect to each sponsoring organization which has made minor modifications, a copy of the plan with the minor modifications inserted in such a manner as to be easily identifiable and, in addition, a statement indicating the purpose and effect of each change.

SEC. 8. EFFECT ON OTHER DOCUMENTS

Rev. Procs. 75-6, 76-32, 77-24, and 80-17 are superseded.

SEC. 9. EFFECTIVE DATE

This revenue procedure is effective September 21, 1987, the date of its publication in the Internal Revenue Bulletin.