PLR 200512034: Pension funding tax waived if distress termination is approved

Plain-English summary

A company facing receivership and a shutdown sought relief related to its pension plan's funding deficiency. It withdrew its request to waive the minimum funding standard, and the IRS closed that part of the case. The IRS granted a waiver of the 100 percent tax under IRC § 4971(b), conditional on approval of the company's application to the Pension Benefit Guaranty Corporation for a distress termination of the plan. If that application is denied, the company may ask the IRS to reopen its withdrawn funding waiver request. The conditional tax waiver covers the uncorrected accumulated funding deficiency described in the letter.

Ruling snapshot

• Question: Would the IRS waive the pension plan's 100 percent funding deficiency tax while a distress termination application was pending?
• Outcome: Approved conditionally; the separate minimum funding standard waiver request was withdrawn.
• Key authorities: IRC § 4971(b); ERISA § 3002(b).

Full text (IRS public release)

Significant Index No. 4971.02-00

DEPARTMENT OF THE TREASURY
200512034
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

DEC 29 2004

[handwritten notation: SEE TE/EP/RA:TA2]

In re: [redacted]

Company = [redacted]

This letter constitutes notice that pursuant to your request of March 15, 2004, as modified by your letter dated December 16, 2004:

1. Your request for a waiver of the minimum funding standard for the above-named
   plan for the plan year ending [redacted] has been withdrawn, and the case has been closed by this office.

2. A waiver of the 100 percent tax under § 4971(b) of the Internal Revenue Code
   (“Code”) has been granted for the above-named plan for the plan year ending
   [redacted] on the condition that the Company’s application to the PBGC for a distress termination of the Plan is approved. If the distress termination application is not approved, the Company may request that the request for a waiver of the minimum funding standard for the plan year ending
   [redacted] that has been withdrawn, be re-opened for consideration.

The conditional waiver of the 100 percent tax has been granted in accordance with
§ 3002(b) of the Employee Retirement Income Security Act (“ERISA”). The amount for which the conditional waiver has been granted is equal to 100 percent of the accumulated funding deficiency in the funding standard account as of [redacted]
[redacted] the end of the plan year for which the waiver has been granted, to the extent such funding deficiency has not been corrected.

Page 2 200512034

The Company is engaged in the manufacture and sale of a diverse line of [redacted]
[redacted] to
customers primarily in the [redacted] in the
eastern half of the United States. According to information submitted with the request, the Company was placed under state court receivership on [redacted] and commenced a shutdown of its operations on [redacted]. Furthermore, a request has been filed with the PBGC to effect a distress termination of the Plan. This request is still pending.

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

We have sent a copy of this letter to the Manager, EP Classification in [redacted]; to the Manager, EP Compliance Unit in [redacted] and to your authorized representative pursuant to a power of attorney on file in this office.

If you require further assistance in this matter, please contact [redacted].

Sincerely yours,

[signature]

Carol D. Gold
Director, Employee Plans