PLR 200730022: IRS denies change to pension funding waivers after property sale falters

Plain-English summary

A company asked the IRS to modify conditional waivers of minimum funding requirements for two pension plans. The earlier waivers had relied heavily on an expected sale of company property after rezoning, but the intended buyer filed for bankruptcy. The company said rezoning remained likely, yet did not provide the township's Master Plan after a conference and several extensions. The IRS made its tentative denial final because the missing information left it unable to conclude that the company's hardship was temporary. It also told the company that excise taxes under section 4971(a) were due on accumulated funding deficiencies and that it should file Forms 5330.

Ruling snapshot

• Question: Would the IRS modify earlier conditional pension funding waivers despite uncertainty about the planned property sale?
• Outcome: Denied; the IRS finalized its refusal to modify the waivers.
• Key authorities: IRC § 4971(a); Rev. Proc. 2006-4 § 12.01

Full text (IRS public release)

Significant Index Number 412.06-00

200730022

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

TAX EXEMPT AND

GOVERNMENT ENTITIES
DIVISION

MAY 02 2007

In re:

Dear

This letter is to inform you that your request for a modification of our ruling letter dated February 22, 2005, granting conditional waivers of the minimum funding requirement for the above-named pension plans for the plan year ending September 30, . has been denied. This decision was conveyed to your authorized representative by

of this office by telephone on April 25, 2007.

The expected sale of real estate (“Property”) that the Company owns to a local home developer was the primary factor that was considered by the Service when determining the Company's likelihood for recovery when granting the conditional waivers in the letter dated February 22, 2005. The Company represented that the Property, which is currently zoned for industrial use, would have to be rezoned to allow for residential use (which would substantially increase the value of the Property) in order for the sale to close. Further, the Company represented that the rezoning process was proceeding and that the township planning board (“Board”) was expected to approve the rezoning of the Property to allow for residential use. In a letter dated November 14, 2006, the Company stated that the home developer that was expected to purchase the property had filed for bankruptcy in September of As a result, the Service concluded that the Company's recovery prospects were much less likely and that the financial hardship that the Company was experiencing was not a temporary business hardship.

200730022

In a letter dated December 15, 2006, you were informed of our tentative adverse position for the request and offered the conference of right that you are entitled to under section 12.01 of Rev. Proc. 2006-4. The conference was held on March 12, 2007. The Company had you, the owners of the Company, the authorized representative of the Company and two actuaries participate in the conference. At the conference, the Company represented that rezoning approval was not in doubt and that the Board had

included the rezoning of the Property for residential use in its Master Plan that was

expected to be finalized. At the conclusion of the conference, the Company had agreed to provide the Service with a copy of the Master Plan. In addition, the Company agreed to submit copies of contingency contracts signed by the engineers and the attorneys involved with the sale of the Property which showed that they would only be paid upon the successful completion of the sale and/or rezoning process. You were given 21 days to provide this information to us.

On March 12, 2007, copies of the contingency contracts, signed by the owners of the Company, were faxed to us. of this office, contacted the authorized representative beyond the 21-day period that you were given to provide additional information to us after the conference, to request that the Master Plan be submitted to us. informed the authorized representative that we would consider the information if it was sent to us by April 13, 2007. On April 18, 2007, by telephone, the authorized representative had requested an extension until April 20, 2007 to provide us the information. On April 20, 2007, the authorized representative faxed us a letter requesting an extension until April 25, 2007 to provide us the information. In the letter of April 20, 2007, the authorized representative stated that the Company understood that if we did not receive the information by that date that we would finalize our ruling. The requested extension date of April 25, 2007 has passed and as of the date of this letter, we have not received a copy of the Master Plan that you had agreed to send us. Further, no other additional information has been submitted to us in support of the rezoning process being completed in the future. As such, we have insufficient information to reverse our tentative denial. Therefore, our tentative denial is now final.

You should note that excise taxes under section 4971(a) of the Internal Revenue Code are currently due on the accumulated funding deficiencies in both plans for the plan years ending September 30, and . If you fail to meet the minimum funding requirements for the plan year ending September 30, by June 15, 2007, the excise taxes under section 4971(a) will also be due. You should file Forms 5330 as soon as possible to report and pay the taxes.

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.

200730022

3

We have sent a copy of this letter to the
to the
and to your
authorized representatives pursuant to a power of attorney on file in this office.

If you have any questions concerning this matter, please contact

Sincerely,

Anthony J. Montanaro, Acting Manager
Employee Plans Actuarial Group 2