PLR 200435016: Return of nondeductible pension contributions may preserve plan qualification

Plain-English summary

An employer asked about returning contributions made to a defined benefit pension plan for the plan year beginning January 1, 2003. The IRS determined that the contributions could be treated as disallowed to the extent they were not deductible, solely for applying the revenue ruling governing their return. It said returning no more than the redacted amount within one year would not harm the plan's qualified status. The letter warned that section 4972 tax would apply if the contributions were not returned by the employer's tax filing date, including granted extensions. The IRS did not endorse the calculations or other materials submitted with the request.

Ruling snapshot

• Question: Could the employer recover nondeductible contributions without harming the pension plan's qualified status?
• Outcome: Approved for a limited amount if returned within one year.
• Key authorities: IRC §§ 404, 4972; Rev. Proc. 90-49; Rev. Rul. 91-4.

Full text (IRS public release)

Significant Index No. 0404.00-00

200435016

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

JUN 01 2004

SET:EP:RA:T:A2

Re:

This letter is in response to your request with respect to the above-referenced defined benefit pension plan pursuant to Revenue Procedure 90-49 for the plan year commencing January 1, 2003.

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 $[illegible], which were made for the plan year commencing
[illegible] may be considered as disallowed, to the extent that they are not deductible, solely for the purpose of applying Rev. Rul. 91-4, 1991-1 C.B. 57. Therefore, the return of contributions not exceeding $[illegible] 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.

This ruling is directed only to the taxpayer that requested it. Section 6110(k)(3) of the Internal Revenue Code provides that it may not be used or cited by others as precedent.

200435016
2

When filing Form 5500 for the plan year commencing January 1, 2003, a copy of this letter must be attached to the Schedule B (Actuarial Information). Hence, a copy of this letter should be provided to the enrolled actuary servicing the plan. We have sent a copy of this letter to the Manager, EP Classification in [illegible]. If you require further assistance in this matter, please contact [illegible] at [illegible].

Sincerely yours,

Donna M. Prestia, Acting Manager
Employee Plans Actuarial Group 2