Determination 1138053: IRS denied a pension plan's minimum funding waiver

Plain-English summary

The IRS denied a company's request to waive the minimum funding standard for its pension plan. Although the company was experiencing financial distress, the IRS concluded that the hardship was not temporary and that the company could not make future payments sufficient to cover both the waiver amortization and the plan's ongoing costs. The IRS also advised that excise taxes under IRC § 4971(a) were due on the unpaid minimum required contribution and directed the company to file Form 5330.

Ruling snapshot

• Question: Could the company obtain a waiver of the minimum funding standard for the plan year?
• Outcome: denied
• Key authorities: IRC §§ 412, 4971(a), and 6110(k)(3); Rev. Proc. 2011-4, § 12.06

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224
TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

JUN 29 2011

Significant Index Number: 412.06-00

In Re: ****** (Plan No. )
Company = ***
EIN: **

Dear ****:

This letter is to inform you that your request for a waiver of the minimum funding standard for the above-named plan for the plan year ending December 31, 200*, is denied.

The Company is a privately-owned manufacturer of sheet metal components and assemblies for the civilian and military aerospace industries. The Company and the Plan operate on a fiscal year ending December 31.

The facts of the Company's situation illustrate that it is experiencing significant financial distress. This is made known by the decline in sales and losses that the Company has incurred from 200 through 200 due to a reduction of its customers' production levels. This, in turn, has caused a significant decline in cash on hand. While the Company has adjusted payroll and expenses in an attempt to improve its financial situation, the Company's cash flows continue to suffer greatly.

You were notified in a letter dated December 22, 2010, that your request had been tentatively denied. In addition, you had a Conference of Right on March 10, 2011. Section 12.06 of Rev. Proc. 2011-4, 2011-1 I.R.B. 151 states that the taxpayer should furnish to the Service any additional information proposed by the taxpayer and discussed at the conference within 21 calendar days from the date of the conference. If the information is not received within that time, a ruling can be issued on the basis of the information at hand. We also sent a letter dated June 10, 2011 requesting the additional information. However, we did not receive any additional information from the Company.

201138053

After considering all financial information the Company has supplied, we have determined that its business hardship is not temporary. Furthermore, even if the funding waiver were granted, the Company's financial submission illustrates that it would not be able to make periodic payments to the Plan sufficient to cover both the amortization payments on the funding waiver plus the future ongoing cost of the Plan. Therefore, because the Company's financial hardship does not appear to be temporary, and it is unable to satisfy future minimum funding requirements, your request for a waiver of the minimum funding standard for the plan year ending December 31, 200*, is denied.

You should note that excise taxes under section 4971(a) of the Internal Revenue Code ("Code") are currently due on the unpaid minimum required contribution for the Plan year ending December 31, 200*. You should file a Form 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. We have sent a copy of this letter to the Manager, EP Classification in Baltimore, Maryland, to the Manager, EP Compliance Unit in Chicago, Illinois. If you require further assistance in this matter, please contact *** * (ID# -*) at () -*.

Sincerely yours,

William Hulteng
Manager, Employee Plans Technical

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