PLR 200541046: Pension contribution reversion can preserve plan qualification

Plain-English summary

An employer sought approval to recover contributions made to a qualified defined benefit plan for a specified plan year. The IRS treated the contributions as disallowed to the extent they were not deductible, solely for purposes of the procedure governing contribution reversions. It ruled that returning no more than the specified amount within one year would not adversely affect the plan's qualified status. A return after the tax filing deadline, including granted extensions, would still trigger the section 4972 tax. The IRS did not verify the submitted calculations.

Ruling snapshot

• Question: Could the plan return disallowed employer contributions without losing qualified status?
• Outcome: Approved for the stated amount and timing, subject to the filing deadline tax caveat.
• Key authorities: IRC § 4972; Rev. Proc. 90-49; Rev. Rul. 91-4.

Full text (IRS public release)

Significant Index No. 0404.00-00 200541046

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

JUL 20 2005

SE:T:EP:RA:T:A2

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 April 1, 2004.

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 [redacted], which were made for the plan year commencing

April 1, 2004, 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 [redacted] 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.

200541046

When filing Form 5500 for the plan year commencing April 1, 2004, 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 [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,

Donna M. Prestia, Manager
Employee Plans Actuarial Group 2