PLR 201218036: IRS denies a law firm's request to waive its minimum funding contribution

Plain-English summary

A law firm asked the IRS to waive the minimum funding contribution for its pension plan for a specified plan year. The IRS denied the request because the firm's financial situation did not meet the standard for temporary substantial business hardship. The IRS also noted that the firm had significantly increased compensation to its equity partners, by more than the required minimum contribution. The letter states that excise taxes under IRC § 4971 were due and instructs the firm to file Form 5330 to report and pay them.

Ruling snapshot

• Question: May the law firm receive a waiver of the required minimum funding contribution for its plan?
• Outcome: denied
• Key authorities: IRC §§ 412(c), 4971, and 6110(k)(3)

Full text (IRS public release)

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

FEB -9 2012 201218036

Significant Index Number: 412.06-00

In re: Request for Waiver of the Minimum Funding Standard for *** **

EIN: ****

Company = ***
Plan = ** ***

Dear *** ****.

This letter constitutes notice that a waiver of the required minimum funding contribution for the Plan for the plan year ending June , 20 is denied.

The Company is a law firm that practices primarily in the areas of torts and insurance litigation.

Section 412(c) of the Internal Revenue Code provides that a waiver of the minimum required contribution may be granted if an employer is unable to satisfy the minimum funding standard for a plan year without temporary substantial business hardship, and application of the standard would be adverse to the interests of plan participants in the aggregate. The factors taken into account in determining temporary substantial business hardship include (but are not limited to) whether or not the employer is operating at an economic loss, there is substantial unemployment or underemployment in the trade or business and in the industry concerned, the sales and profits of the industry concerned are depressed or declining, and it is reasonable to expect that the plan will be continued only if the waiver is granted.

After considering all financial information the Company has supplied, we have determined that the Company's financial situation did not meet the standard to grant a waiver of the minimum funding standard. Furthermore, the Company's submission shows that it had increased compensation to its equity partners by a significant amount during the plan year at issue. The amount of the increase was greater than the minimum required contribution for the plan year ending June , 20 . Therefore, your request for a waiver of the minimum funding standard for the plan year ending June ,

20 , is denied. You should note that excise taxes under section 4971 of the Internal Revenue Code ("Code") are currently due on the minimum funding requirement for the Plan year ending June , 20 . 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 [illegible].

If you require further assistance in this matter, please contact * at () *** - ****.

Sincerely,

William Hulteng, Manager
Employee Plans Technical