PLR 1220039: IRS denies a waiver of the minimum funding standard

Plain-English summary

The IRS denied a multiemployer plan's request to waive the minimum funding standard for the plan year ending May 31, 2005. The IRS concluded that the plan did not show that at least 10 percent of its contributing employers were unable to satisfy the standard without substantial business hardship. The financial information for two contributing hotels did not establish the required hardship, and one hotel was reported to have paid its share of the minimum funding standard. The IRS also stated that excise taxes were due on the plan's accumulated funding deficiency.

Ruling snapshot

• Question: May the plan receive a waiver of the minimum funding standard based on substantial business hardship?
• Outcome: Denied
• Key authorities: IRC §§ 412(c)(1)(A), 4971(a), and 6110(k)(3)

Full text (IRS public release)

Significant Index No. 0412.06-00

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

OCT 13 2009 201220039

T: EP: RA: UK

Re:

Region =
Hotel A =
Hotel B =

Dear

This letter constitutes notice that your request for a waiver of the minimum funding
standard for the Plan for the plan year ending May 31, 2005, has been denied. In a
letter dated December 2, 2008, you were informed that your application for a waiver of
the minimum funding standard had been tentatively denied and were offered a
conference of right. Your conference of right was held on March 4, 2009. Our primary
reason for the tentative denial was that the standards for a substantial business
hardship had not been met. In particular, it was our position that the contributing
employers could satisfy the minimum funding standard for the plan year in question
without experiencing substantial business hardship.

FILE COPY

201220039

Section 412(c)(1)(A) of the Code (as in effect prior to the Pension Protection Act
of 2006) provides that, in the case of a multiemployer plan, if at least 10% of the
contributing employers are unable to satisfy the minimum funding standard without
experiencing substantial business hardship and application of the standard would be
adverse to the interests of plan participant's in the aggregate, then the minimum funding
standard for the plan year in question may be waived. According to the information
received for this case, in order to show that at least 10% of the contributing employers
have experienced substantial business hardship for the plan year in question, the
Taxpayer must show that at least two of the contributing employers were unable to
satisfy the minimum funding standard without experiencing substantial business
hardship. For this purpose, the Trustees submitted financial information for Hotel A and
Hotel B in order to show that a substantial business hardship had occurred.

The financial information submitted for Hotel A shows approximately $ [illegible] in total
net income for the period January [illegible], 20[illegible], through March [illegible], 20[illegible]. Hotel A made
contributions totaling $ [illegible] to the Plan during this period. Hotel A's portion of the
funding shortfall is only $ [illegible]. Based on this information, it does not appear that
Hotel A would experience a substantial business hardship in order to satisfy its portion
of the minimum funding standard for the plan year ending May [illegible], 20[illegible].

While the financial information submitted for Hotel B shows losses for the fiscal years
ending December [illegible], 20[illegible], 20[illegible], 20[illegible] and 20[illegible], your authorized representative
indicated at the conference of right that Hotel B was able to pay its share of the
minimum funding standard for the plan year ending May [illegible], 20[illegible]. Hence, Hotel B did
not experience a substantial business hardship in order to satisfy its portion of the
minimum funding standard for the plan year ending May [illegible], 20[illegible].

It's clear that the Plan has experienced financial difficulties. However, the Trustees
have failed to provide sufficient information that at least [illegible]% of the Plan's contributing
employers were unable to satisfy the minimum funding standard for the Plan for the plan
year ending May [illegible], 20[illegible], without experiencing substantial business hardship as
required by section 412(c)(1)(A) of the Code. Accordingly, your request for a waiver of
the minimum funding standard for the Plan for the plan year ending May [illegible], 20[illegible], has
been denied.

You should note that excise taxes under section 4971(a) of the Internal Revenue Code
are currently due on the accumulated funding deficiency in the Plan for the plan year
ending May [illegible], 20[illegible]. 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.

201220039

We have sent a copy of this letter to the Manager, EP Classification in
[illegible]
to the Manager, EP Compliance Unit in [illegible] and to your
authorized representative pursuant to a power of attorney (Form 2848) on file with this
office. If you require further assistance concerning this matter, please contact

Sincerely yours,

[signature]

David M. Ziegler, Manager
Employee Plans Actuarial Group 2