IRS approval 1206024: Return of certain nondeductible defined-benefit-plan contributions

Plain-English summary

The IRS addressed a request involving a qualified defined-benefit pension plan and employer contributions that were treated as nondeductible under Revenue Procedure 90-49. It determined that specified contributions could be treated as disallowed solely for purposes of applying Rev. Rul. 91-4, so returning contributions up to the stated redacted amount would not adversely affect the plan's qualified status if the return occurred within one year of the letter. The letter also warned that returning the contributions could create accumulated funding deficiencies and related excise-tax and filing obligations. The approval was limited to the taxpayer's submitted facts and did not express an opinion on the accuracy of the calculations or other materials.

Ruling snapshot

• Question: Would returning certain nondeductible defined-benefit-plan contributions adversely affect the plan's qualified status?
• Outcome: Approved
• Key authorities: IRC §§ 404, 412, 4971, 4972, and 6110; Rev. Proc. 90-49; Rev. Rul. 91-4.

Full text (IRS public release)

Significant Index No. 0404.00-00
DEPARTMENT OF THE TREASURY

INTERNAL REVENUE SERVICE 201206024

WASHINGTON, D.C. 20224

GOVERNMENT ENTITIES
DIVISION

MAR 16 2011

T:EP:RA

Re:

Dear:

This letter is in response to your request with respect to the above-referenced
defined benefit pension plan pursuant to Revenue Procedure 90-49 for the plan
years commencing January 1, , , and

Rev. Proc. 90-49 sets forth the procedure whereby, under certain
circumstances, a disallowance of the deduction of employer contributions to a
qualified defined benefit plan may be obtained; thereby fulfilling a condition
under which such contributions could revert to the employer.

Based on the information submitted, we have determined that contributions
totaling $ which were made for the plan years commencing
January 1, , , and , may be considered as disallowed solely for
the purpose of applying Rev. Rul. 91-4. Therefore the return of contributions
not exceeding $ would not adversely affect the qualified status of the
plan, providing this reversion occurs no later than one year from the date of this
letter. However, please note the special provisions that apply under
section 404(a)(8)(C) of the Internal Revenue Code (Code) for a qualified
pension plan maintained by a self-employed individual. Furthermore, as we
discussed with your authorized representative during a telephone conference
on March 7, 2011, the return of the nondeductible contributions may result in
accumulated funding deficiencies under section 412 of the Code for each of the
plan years in question. Consequently, if the contributions are returned, you
may be required to file a revised Form 5500 Schedule B for one or more tax
years, along with a Form 5330, and pay the excise tax under section 4971(a) of
the Code associated with the accumulated funding deficiencies that may arise
in the Plan. If the contributions remain in the Plan, while they may be
considered nondeductible under section 404 of the Code, they would not be
considered nondeductible contributions under section 4972 of the Code since
section 4972(c)(4) provides a special rule for determining the nondeductibility of
contributions to a defined benefit plan for self-employed individuals for purposes
of determining the excise tax under section 4972.


201206024

In granting this approval, we are not expressing any opinions as to the accuracy
or acceptability of any calculations or other material submitted with your
request. Furthermore, 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.

When filing Forms 5500 for the plan years commencing January 1, ; ,
and , a copy of this letter must be attached to the Schedule B if the
contributions are returned. A copy of this letter should be furnished to the
enrolled actuary for the plan. We have sent copies to your authorized
representatives pursuant to a power of attorney on file in this office.

If you require further assistance concerning this matter, please contact

Sincerely yours,

[illegible]

David M. Ziegler, Manager
Employee Plans Actuarial Group 2