CCA 200716023: Railroad business is not a covered employer for railroad retirement tax

Plain-English summary

The Railroad Retirement Board reconsidered an earlier decision that treated a business as a covered railroad employer. The business clarified that its main purpose was to reduce coal transportation costs and electricity costs for customers of an affiliate. The Board found that the business met all three criteria in its Railroad Ventures decision and concluded that it was not a covered employer under the railroad retirement laws. After reviewing the Board's opinion and information, IRS Chief Counsel also concluded that the business was not a covered employer under the Railroad Retirement Tax Act. The effective date is redacted in the released memorandum.

Ruling snapshot

• Question: Is the business a covered employer under the Railroad Retirement Tax Act?
• Outcome: Advice given; Chief Counsel concluded it was not a covered employer.
• Key authorities: IRC § 3231; Railroad Retirement Board Coverage Decision 00-47.

Full text (IRS public release)

Office of Chief Counsel

Memorandum
Internal Revenue Service

Number: 200716023
Release Date: 4/20/2007
CC:TEGE:EOEG:ET1
POSTN-156881-06

UILC: 3231.01-00

date: January 11, 2007
to: Director, Submission Processing
Cincinnati, OH
Attn: Entity Unit

from: Office of Division Counsel/Associate Chief Counsel (Tax Exempt & Government Entities)

subject: Railroad Retirement Tax Act Status

In accordance with the coordination procedure established between the Service and the Railroad Retirement Board (RRB), the RRB has provided us with its opinion on reconsideration dated -------------------------, that the following business is not a covered employer under the Railroad Retirement Act and the Railroad Unemployment Insurance Act effective -----------------------:

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In the Board Coverage Decision (B.C.D.) No. --------, dated ------------------, the RRB determined that -------------------------------------------- was an employer under the Railroad Retirement Act and the Railroad Unemployment Insurance Act (the Acts) effective ------- -----------------------. In this decision, the RRB cited its decision regarding Railroad Ventures, Inc. (B.C.D. 00-47), where the RRB held that an entity that has Surface Transportation Board authority to operate a rail line, but leases or contracts with another to operate line in question, is covered under the Acts administered by the RRB unless the RRB determines that the entity is not a carrier under the RRB’s applicable three-part test: 1) the entity does not have as a primary business purpose to profit from railroad activities; 2) the entity does not operate or retain the capacity to operate the rail line;

POSTN-156881-06
2

and 3) the operator of the rail line is already covered or would be found to be covered under the Acts administered by the RRB.

The RRB originally found that the purpose of ------------------- was to enable its affiliate, --
--------------------------, to profit from marketing coal. Accordingly, the RRB found that ------
------------------ does not meet the three Railroad Ventures factors and held it to be a covered rail carrier employer. In the request for reconsideration, -------------------stated that its primary business purpose was to reduce the transportation cost of coal and thereby reduce the electric energy cost paid by the customers of its affiliate --------------------------------.

Based on this clarification, the RRB concluded that ------------------ met all three of the criteria stated in Railroad Ventures. Accordingly, the RRB granted the request for reconsideration and concluded that ------------------- is not a covered employer.

We have reviewed the opinion of the RRB and, based upon the information submitted to us by the RRB, we also conclude that -------------------------------------------- is not a covered employer under the Railroad Retirement Tax Act effective -----------------------. Please take the appropriate action regarding this business.

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Janine Cook-