PLR 200652045: Nondeductible pension contributions may return to the employer within one year

Plain-English summary

An employer asked to treat certain contributions to a defined benefit pension plan as disallowed deductions so they could revert to the employer. The IRS allowed that treatment only to the extent the contributions were not deductible and solely for the cited reversion procedure. Returning no more than the redacted approved amount within one year of the letter would not harm the plan's qualified status. The letter warned that section 4972 tax would apply if the money was not returned by the employer's tax filing deadline, including granted extensions. The IRS did not approve the accuracy of the submitted calculations.

Ruling snapshot

• Question: May the employer recover nondeductible pension contributions without harming plan qualification?
• Outcome: Approved, within the redacted amount and one-year deadline; section 4972 timing warning applies.
• Key authorities: IRC §§ 404 and 4972; Rev. Proc. 90-49; Rev. Rul. 91-4.

Full text (IRS public release)

Significant Index No. 0404.00-00
200652045

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

OCT 0 3 2006
T:EP:RA:T:A2

In 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 April 1, 2005.

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 $ which were made for the plan year commencing April 1, 2005, 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 $ 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.

200652045
2

When filing Form 5500 for the plan year commencing April 1, 2005, 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 to the Manager, EP Compliance Unit in 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

Sincerely yours,

Donna M. Prestia, Manager
Employee Plans Actuarial Group 2