GUIDELINES ISSUED FOR AMENDING IRAs TO REFLECT MINIMUM DISTRIBUTION RULES.

Rev. Proc. 92-38

SECTION 1. PURPOSE

01 This revenue procedure provides notice that individual retirement arrangement trusts, custodial account agreements, and annuity contracts (IRAs) must be amended to provide for the required distribution rules in section 408(a)(6) or (b)(3) of the Internal Revenue Code (Code). In addition, this revenue procedure modifies the guidance in Rev. Proc. 87-50, 1987-2 C.B. 647, with regard to opinion letters issued to sponsoring organizations, including mass submitters and sponsors of prototype IRAs.

02 This revenue procedure does not apply to mass submitters and sponsors of prototype IRAs that received an opinion letter dated after January 31, 1990, stating that the trust, custodial account, or annuity contract is acceptable under section 408 of the Code, as amended by the Tax Reform Act of 1986.

SEC. 2. BACKGROUND AND GENERAL INFORMATION

01 Sections 408(a)(6) and 408(b)(3) of the Code provide that, pursuant to regulations, IRAs must comply with rules similar to the minimum distribution requirements of section 401(a)(9) of the Code and the incidental death benefit requirements of section 401(a) of the Code. Section 1.408-8, Q&A B-12 of the proposed Income Tax Regulations provides that the Commissioner shall prescribe the time by which a trust instrument for an IRA, including an IRA established by executing Form 5305 or 5305A, must be amended to comply with sections 408(a)(6) or 408(b)(3) of the Code.

02 Rev. Proc. 87-50 provides the procedures under which the Service will issue an opinion letter to an employer or sponsoring organization as to whether an IRA meets the requirements of section 408 of the Code. The Service has also formulated a model trust agreement and a model custodial account agreement (Forms 5305 and 5305A) for which opinion letters will not be issued, but on which taxpayers can rely until further notice by the Service.

03 Rev. Proc. 90-17, 1990-1 C.B. 479, specifies the applicable user fees effective for receipts after March 31, 1990.

SEC. 3. OPINION LETTERS

IRA Opinion Letters -- Effective May 18, 1992, in order for a mass submitter or a sponsor to obtain a favorable opinion letter as to whether an IRA meets the requirements of section 408(a) or (b) of the Code, the instrument must meet the distribution requirements of section 1.408-8 of the proposed regulations.

SEC. 4. INSTRUCTIONS TO SPONSORING ORGANIZATIONS, EMPLOYERS, AND EMPLOYEE ASSOCIATIONS

01 IRAs must be amended to meet the distribution requirements of section 1.408-8 of the proposed regulation either through the adoption of the model language provided in section 6 of this revenue procedure or through individual amendments to their arrangements.

02 A sponsor that chooses to adopt the model language must make such amendment by May 18, 1993, in order to continue reliance on a previously issued opinion letter. A sponsor that chooses to draft individual amendments to conform the IRA to the requirements of section 1.408-8 of the proposed regulations must make such amendments and submit the amended IRA to the Service by May 18, 1993, in order to continue reliance on a previously issued opinion letter. The amended arrangement should be submitted in accordance with Rev. Proc. 87-50 and Rev. Proc. 90-17.

03 IRAs that were previously established by executing Form 5305 or 5305A must continue to operate in compliance with section 408(a)(6) or 408(b)(3) of the Code and the regulations thereunder until the revised Forms 5305 and 5305A are available. The Service will publish an announcement when the revised forms are available that will specify the time by which the revised forms must be executed and put into effect.

SEC. 5. SPECIAL INSTRUCTIONS TO MASS SUBMITTERS

01 A mass submitter that adopts the model language must submit to the Service a certification that it has added the model language to its IRA. The Service will then mail a list to the mass submitter showing all prior word-for-word identical adopters of the IRA. The mass submitter must then certify that all prior word-for-word identical adopters will be notified of the addition of the model language. Sponsoring organizations of the mass submitter that choose to adopt the model language must make such amendment by May 18, 1993, in order to continue reliance on a previously issued opinion letter.

02 A mass submitter that chooses to draft individual amendments must notify the Service of its intention to amend the plan. Such notification must be submitted, in writing, to the Commissioner of Internal Revenue, Washington, D.C. 20224, Attention: E:EP:Q. After receipt of notification, the Service will then mail a list to the mass submitter showing all prior word-for-word identical adopters of the IRA. The mass submitter must then submit the amended IRA to the National Office for approval, along with a list identifying all adopting sponsoring organizations' IRAs that will be amended and the appropriate user fee, as specified in section 6.03(2) of Rev. Proc. 90-17. Any sponsoring organization of the mass submitter that adopts the individual amendments to the mass submitter's IRA by May 18, 1993, will be issued an opinion letter, provided the organization is identified on the list submitted to the Service and a user fee is paid on its behalf.

SEC. 6. MODEL LANGUAGE

01 The following model language may be used to amend IRAs to provide for the distribution rules contained in section 408(a)(6) and section 408(b)(3) of the Code and the regulations thereunder. This model language is intended to replace the distribution language contained in the IRA prior to amendment. The wording and/or numbering in the heading of each article may be changed to conform to the system currently used in the document.

02 Sponsors should consult with a professional tax advisor before deciding whether to adopt this model language.

"Article I

Notwithstanding any provision of this agreement to the contrary, the distribution of an individual's interest shall be made in accordance with the minimum distribution requirements of section 408(a)(6) or section 408(b)(3) of the Code and the regulations thereunder, including the incidental death benefit provisions of section 1.401(a)(9)-2 of the proposed regulations, all of which are herein incorporated by reference.

Article II

The owner's entire interest in the account must be distributed, or begin to be distributed, by the owner's required beginning date, which is the April 1 following the calendar year in which the owner reaches age 70 1/2. For each succeeding year, a distribution must be made on or before December 31. By the required beginning date the owner may elect to have the balance in the account distributed in one of the following forms:

a. a single sum payment;

b. equal or substantially equal payments over the life of the owner;

c. equal or substantially equal payments over the lives of the owner and his or her designated beneficiary;

d. equal or substantially equal payments over a specified period that may not be longer than the owner's life expectancy;

e. equal or substantially equal payments over a specified period that may not be longer than the joint life and last survivor expectancy of the owner and his or her designated beneficiary.

Article III

If the owner dies before his or her entire interest is distributed, the entire remaining interest will be distributed as follows:

a. If the owner dies on or after distributions have begun under Article II, the entire remaining interest must be distributed at least as rapidly as provided under Article II.

b. If the owner dies before distributions have begun under Article II, the entire remaining interest must be distributed as elected by the owner or, if the owner has not so elected, as elected by the beneficiary or beneficiaries, as follows:

1) by December 31st of the year containing the fifth anniversary of the owner's death; or

2) in equal or substantially equal payments over the life or life expectancy of the designated beneficiary or beneficiaries starting by December 31st of the year following the year of the owner's death. If, however, the beneficiary is the owner's surviving spouse, then this distribution is not required to begin before December 31st of the year in which the owner would have turned 70 1/2.

Article IV

Unless otherwise elected by the owner prior to the commencement of distributions under Article II or, if applicable, by the surviving spouse where the owner dies before distributions have commenced, life expectancies of an owner or spouse beneficiary shall be recalculated annually for purposes of distributions under Article 11 and Article 111. An election not to recalculate shall be irrevocable and shall apply to all subsequent years. The life expectancy of a nonspouse beneficiary shall not be recalculated.

Article V

An individual may satisfy the minimum distribution requirements under sections 408(a)(6) and 408(b)(3) of the Code by receiving a distribution from one IRA that is equal to the amount required to satisfy the minimum distribution requirements for two or more IRAs. For this purpose, the owner of two or more IRAs may use the 'alternative method' described in Notice 88-38, 1988-1 C.B. 524, to satisfy the minimum distribution requirements described above."

SEC. 7. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 87-50, 1987-2 C.B. 647, is modified.

SEC. 8. EFFECTIVE DATE

This revenue procedure is effective May 18, 1992, the date of its publication in the Internal Revenue Bulletin.

DRAFTING INFORMATION

The principal authors of this revenue procedure are Susan Browning and Susan Taylor, of the Employee Plans Technical and Actuarial Division. For further information regarding this revenue procedure, please contact the Employee Plans Technical and Actuarial taxpayer assistance telephone service between the hours of 1:30 pm. and 4:00 pm. Eastern Time, Monday through Thursday, on (202) 566- 6783/6784 (not a toll-free call). Ms. Browning's and Ms. Taylor's telephone number is (202) 566-9639 (also not a toll-free call).