CCA 200922029: Plan review rejected two excise-tax approaches but flagged benefit-limit concerns

Plain-English summary

After internal discussions and consultation with the Department of Labor, Chief Counsel reported a decision not to treat the reviewed transactions as prohibited transactions under section 4975 or pursue section 4980 excise tax against the plan sponsors' owner-sellers. The email noted that section 4980(b) places the excise tax on the employer maintaining the plan and that controlled-group rules did not apply to that section. Separately, it identified distributions that appeared to exceed the section 415(b) benefit limits. If that apparent violation were confirmed, the plan would be disqualified. The office also noted that the examination explanation did not address how or whether an identified amount was reported as taxable income.

Ruling snapshot

• Question: Which tax issues should be pursued in the reviewed plan transactions?
• Outcome: Advice given: do not pursue the stated section 4975 and owner-seller section 4980 theories; examine the apparent section 415(b) violation and income reporting.
• Key authorities: IRC §§ 4975, 4980(b), 415(b).

Full text (IRS public release)

ID: CCA_2009042108352450 Number: 200922029
Release Date: 5/29/2009
Office: -------------------------
UILC: 4980.00-00 and 4975.00-00

From: --------------------
Sent: Tuesday, April 21, 2009 8:35:30 AM
To: -------------------
Cc: -----------------------------------------------------------
Subject: RE: -------------- Cases

After meeting with --------------, ------------ from ------------, and ------------, it was decided that we should not treat these transactions as prohibited transactions under section 4975 of the Code (This is also after consultation with Department of Labor.) or pursue section 4980 excise tax against the owner/sellers of the plan sponsors. The controlled group rules don’t apply to section 4980, ----------------------------------------------- --------------------------------------------------------------- Also, section 4980(b) says that the section 4980 excise tax shall be paid by the employer maintaining the plan. -------------------------------------------------------------------
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In the ------------ case, in the Form 886A on page 2 it says that the Form 5500 Schedule I for Plan Year ended December 31, ------- show benefits paid of $----------------, which total distributions made to ---- ------------- in Exhibits 5 and 6. This distribution amount appears to be a violation of the section 415(b) limitations. If that is the case the section 415(b) limitation violation would disqualify the Plan. Also, there is no reference in the Form 886A how or whether the $--------------- was reported as taxable income to Taxpayer.

Sorry for the delay in getting back to you.

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