CCA 200851069: Critical status relief covers the year certified, not the years before it

Plain-English summary

A question about a multiemployer pension plan that has fallen behind on funding and has now certified itself into a distressed category. The answer turns on the difference between relief for a year and relief from a history.

Employers sponsoring a defined benefit plan must contribute enough each year to meet minimum funding standards. Falling short produces an accumulated funding deficiency, and section 4971 backs the requirement with excise tax: a first-tier tax on the deficiency, and a second-tier tax under section 4971(b) at a far higher rate if the deficiency is not corrected after the Service has noticed it. The second-tier tax is the enforcement end of the provision, and the writer opens by saying they have not seen it assessed against a multiemployer plan, which is an observation about practice rather than about law.

The Pension Protection Act of 2006 built a separate track for multiemployer plans in trouble. A plan that certifies it is in critical status adopts a rehabilitation plan and works back to health on a schedule, and section 4971(g)(1) relieves it of the excise for the taxable year it is in that status. The point of the design is that a plan already under a supervised recovery should not be taxed for the shortfall the recovery exists to fix.

The question was how far back that relief reaches. The writer's answer is that it does not reach back at all. The tax for years before the Act, meaning 2007 and earlier years, would still be owed by a plan that certifies critical status for 2008. The relief attaches to the taxable year in which the plan is in critical status, so certifying for 2008 removes the excise for 2008 and leaves the earlier years where they stood. A plan entering the new regime clears its forward path, not its back liability.

The framing is cautious throughout. The writer says they have not seen the second-tier tax assessed against such a plan and that they think this would be the answer, so the release records a considered expectation rather than a settled position. It also does not address whether the earlier years might be resolved some other way, such as by waiver or by correction, which are the questions a plan in this position would ask next.

This is a clean digital release rather than a scan, so no OCR correction was needed. Kept as released: "a multi," the colloquial short form for a multiemployer plan; "PPA" left unexpanded in both the subject line and the body; and the parenthetical "(2007 and earlier years)".

Ruling snapshot

• Question: Does a multiemployer plan's certification of critical status for 2008 relieve it of section 4971 excise tax for earlier years?
• Outcome: Advice given, framed as the writer's expectation. No. The tax for years prior to the Pension Protection Act, 2007 and earlier, would still be owed by plans that certify they are in critical status for 2008. A critical status plan has no excise for the taxable year it is in critical status, under section 4971(g)(1). The writer has not seen the section 4971(b) tax assessed against a multiemployer plan.
• Key authorities: IRC section 4971(b) and 4971(g)(1); the Pension Protection Act of 2006.

Full text (IRS public release)

ID: CCA_2008092208305056 Number: 200851069
Office: ------------------------- Release Date: 12/19/2008

UILC: 4971.00-00

From: ------------------
Sent: Monday, September 22, 2008 8:30:51 AM
To: --------------------------------------------------------------
Cc:
Subject: RE: PPA

---------

I have not seen us assess the 4971(b) tax against a multi. However, I think the answer would be that the tax for years prior to the PPA (2007 and earlier years) would still be owed for plans that certify they are in critical status for 2008. A critical status plan has no excise for the taxable year (2008) it is in critical status under 4971(g)(1).

--------