PLR 1247024: IRS grants more time for a qualified separate lines of business election

Plain-English summary

The IRS granted a diversified holding company six more months to file Form 5310-A and make a notice election for qualified separate lines of business. The company had relied on an employee-benefits firm's advice that no additional election was needed, but later testing showed that two additional qualified separate lines of business were needed. The IRS found that the failure was reasonable and in good faith and that granting relief would not prejudice the government. The company still had to satisfy the other requirements of section 414(r).

Ruling snapshot

• Question: Could the company receive more time to file the qualified separate lines of business notice?
• Outcome: Approved
• Key authorities: IRC §§ 414(r), 410(b), 401(a)(4), and 401(a)(26); Treas. Reg. §§ 1.414(r)-1, 1.414(r)-4, 1.414(r)-6, and 301.9100-1 through 301.9100-3; Rev. Proc. 93-40

Full text (IRS public release)

201247024
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE

WASHINGTON, D.C. 20224

TAX EXEMPT AND

[illegible handwritten notation]

AUG 30 2012

UIL: 414.18-00, 9100.00-00

[illegible handwritten notation]

Attn: XXXXXXXXXX

XXXXXXXXXXXX

XXXXXXXXXXX

XXXXXXXXXXX

XXXXXXXXXX
LEGEND:
Company F = XXXXXXXXXX
Firm A = XXXXXXXXXXX
Year 1 = XXXX
Year 2 = XXXXX
Year 3 = XXXX
Year 4 = XXXX
Year 5 = XXXX
Date 1 = XXXXXXXXXXX
Date 2 = XXXXXXXXXXX
Date 3 = XXXXXXXXXXXXXX
Trustee A = XXXXXXXXXXXXX
Dear XXXXXXXXXX:

This is in response to the XXXXXXXXX<X, letter submitted on Company F’s
behalf in which it requests an extension of time pursuant to section 301.9100-1 of
the Procedure and Administration Regulations (the “P&A Regulations”) to file the
notice of election described in section 3 of Revenue Procedure 93-40, 1993-2
C.B. 535 (“Rev. Proc. 93-40”) to be treated as operating qualified separate lines

XXXXXXXXXX

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of business ("QSLOBs") under section 414(r)(2) of the Internal Revenue Code of
1986, as amended (the "Code") and sections 1.414(r)-1(b) and 1.414(r)-4 of the
Income Tax Regulations (“I.T. Regulations”).).

Facts:

The following facts and representations have been submitted under penalties of
perjury in support of Company F’s ruling request:

Company F is a diversified holding company engaged in a variety of businesses
domestically and abroad. Company F's United States subsidiaries are organized
in QSLOBs for qualified plan testing purposes and there are no qualified
employee benefit plans maintained by any member of the controlled group that
are common to all members.

Company F engaged in numerous acquisition transactions that have changed the
employee population of its controlled group since Year 2. For the Year 3 plan
year, Company F elected to be treated as three separate QSLOBs under section
414(r) of the Code and filed an Internal Revenue Service Form 5310-A, Notice of
Plan Merger or Consolidation, Spinoff, or Transfer of Plan Assets or Liabilities;
Notice of Qualified Separate Lines of Business on Date 1. For the Year 4 plan
year, because of changes in corporate ownership, Company F began operating
only two QSLOBs. In Year 4, Company F made a number of corporate
acquisitions. Company F determined it was required to include those companies
in their controlled-group in the Year 5 plan year for testing purposes.

Company F has engaged Firm A to provide employee benefits and actuarial
consulting services since Year 1. The services include retirement plan coverage
and nondiscrimination testing for all entities in Company F’s controlled group.
Firm A provided testing services to determine whether Company F needed to
elect additional QSLOBs to meet the coverage and nondiscrimination
requirements for the Year 5 plan year. Firm A advised Company F that it would
pass the applicable tests for that plan year without electing additional QSLOBs
and that it did not need to file a Form 5310-A with the Internal Revenue Service
(the “Service”) by Date 2.

On Date 3, Firm A advised Company F that it had conducted additional testing
and that Firm A’s initial recommendation regarding QSLOB elections was
incorrect. Firm A recommended that Company F file an election to maintain two
additional QSLOBs for the Year 5 plan year. Firm A’s recommendation was
made after the deadline for submitting Form 5310-A had already passed for the
Year 5 plan year as evidenced by an affidavit from Trustee A, trustee for
Company F’s various retirement plans.

Company F represents that other than its failure to file Form 5310-A in a timely
manner, all requirements under section 414(r) of the Code are satisfied.

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Ruling Requested:

Company F requests a ruling that under section 301.9100-3 of the P&A
Regulations the filing of Form 5310-A as described above will be deemed as a
timely filing for purposes of operating qualified separate lines of business under
IRC section 414 (r) with respect to its Year 5 testing year.

Law:

In general, section 414 of the Code provides that for purposes of sections
129(d)(8) and 410(b) of the Code an employer shall be treated as operating
separate lines of business during any year if the employer operates separate
lines of business for bona fide business reasons and satisfies certain other
conditions under the Code. If the employer is treated as operating QSLOBs for
the year, the employer may apply the minimum coverage requirements of section
410(b) (including the nondiscrimination requirements of section 401(a)(4) of the
Code and the minimum participation requirements of section 401(a)(26) of the
Code) separately with respect to the employees in each qualified separate
business line.

Section 414(r)(2)(B) of the Code requires that an employer notify the Secretary of
the Treasury that a line of business is being treated as separate for purposes of
sections 129(d)(8) and 410(b) of the Code.

Section 3 of Rev. Proc. 93-40 sets forth the exclusive rules for satisfying the
notice requirement of section 414(r)(2)(B) of the Code. Section 3.03 of Rev. Proc.
93-40, provides that notice must be given by filing Form 5310-A. Section 3.05 of
Rev. Proc. 93-40 provides that notice for a testing year must be given on or
before the Notification Date for the testing year. The Notification Date for a
testing year is the later of October 15 of the year following the testing year or the
15th day of the 10th month after the close of the plan year of the plan of the
employer that begins earliest in the testing year. Section 3.06 of Rev. Proc. 93-40
provides, in pertinent part, that after the Notification Date, notice cannot be
modified, withdrawn or revoked, and will be treated as applying to subsequent
testing years unless the employer takes timely action to provide a new notice.

Under section 301.9100-1(c) of the P&A Regulations, the Commissioner of
Internal Revenue may grant a reasonable extension of time to make a regulatory
election or certain statutory elections under Subtitle A of the Code if the taxpayer
demonstrates to the satisfaction of the Commissioner that the taxpayer acted
reasonably and in good faith, and that granting the relief will not prejudice the
interests of the government.

Section 301.9100-1(b) of the P&A Regulations defines the term "regulatory
election" as an election whose due date is prescribed by a regulation published

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the Federal Register, or a revenue ruling, revenue procedure, notice, or
announcement published in the Internal Revenue Bulletin. Notice that an
employer elects to be treated as operating qualified separate lines of business
pursuant to sections 414(r) of the Code (which is under Subtitle A) and section 3
of Rev. Proc. 93-40 is a regulatory election.

The Commissioner has authority under sections 301.9100-1 and 301.9100-3 of
the Regulations to grant an extension of time if a taxpayer fails to file a timely
notice of election under section 3 of Rev. Proc 93-40.

Section 301.9100-3 of the P&A Regulations provides that applications for relief
that fall within section 301.9100-3 will be granted when the taxpayer provides the
evidence (including affidavits described in section 301.9100-3(e)(2)) to establish
that (1) the taxpayer acted reasonably and in good faith, and (2) granting relief
would not prejudice the interests of the government.

Section 301.9100-3(b)(1) of the P&A Regulations provides that a taxpayer will be
deemed to have acted reasonably and in good faith if the taxpayer:

(i) Requests relief under this section before the failure to make the regulatory
election is discovered by the Service;

(ii) Failed to make the election because of intervening events beyond the
taxpayer's control;

(iii) Failed to make the election because, after exercising reasonable diligence
(taking into account the taxpayer's experience and the complexity of the return or
issue), the taxpayer was unaware of the necessity for the election;

(iv) Reasonably relied on the written advice of the Service; or

(v) Reasonably relied on a qualified tax professional, including a tax professional
employed by the taxpayer, and the tax professional failed to make, or advise the
taxpayer to make, the election.

Section 301.9100-3(c) of the Regulations provides that ordinarily the interests of
the Government will be treated as prejudiced and that ordinarily the Service will
not grant relief when tax years that would have been affected by the election had
it been timely made are closed by the statute of limitations before the taxpayers
receipt of a ruling granting relief under this section or if granting relief would
result in a taxpayer having a lower tax liability in the aggregate for all taxable
years affected by the election than the taxpayer would have had if the election
had been timely made.

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Analysis:

Pursuant to section 301.9100-1(b) of the P&A Regulations, an election by an
employer to be treated as operating QSLOBs pursuant to section 414(r) of the
Code and section 3 of Rev. Proc. 93-40 is a “regulatory election.” Under section
301.9100-1(c) of the Regulations, the Commissioner of Internal Revenue may
grant a reasonable extension of time to make a regulatory election or certain
statutory elections under Subtitle A of the Code if the taxpayer demonstrates to
the satisfaction of the Commissioner that (1) the taxpayer acted reasonably and
in good faith, and (2) that granting the relief will not prejudice the interests of the
government.

Company F's ruling request contains an explanation describing the
circumstances that caused its failure to give the Service timely notice of its
QSLOB election for Year 5. Under section 301.9100-3(b)(1)(v), the taxpayer will
be deemed to have acted reasonably and in good faith if it “reasonably relied on
a qualified tax professional, including a tax professional employed by the
taxpayer, and the tax professional failed to make, or advise the taxpayer to
make, the election.” Here, Company F's failure was due to its having reasonably
relied on Firm A's recommendation that it would pass coverage and
nondiscrimination testing without electing additional QSLOBs. The ruling request
also provides an explanation of the actions Company F took following their
discovery of this failure.

Furthermore, the interests of the government are not prejudiced by the Service
granting Company F's request. Section 301.9100-3(c) of the P&A Regulations
provides that ordinarily the Service will not grant relief when tax years that would
have been affected by the election had it been timely made are closed by the
statute of limitations before the taxpayers receipt of a ruling granting relief under
this section or if granting relief would result in a taxpayer having a lower tax
liability than if the election had been timely made. Here, the statute of limitations
has not run for any tax years that would have been affected by the election had it
been made timely. In addition, granting relief will not result in Company F having
a lower tax liability than if the election had been timely made.

Conclusion:

With respect to Company F's request for relief, based on the information
submitted and the representations contained herein, Company F is entitled to
relief based on clauses (i) and (v) of section 301.9100-3(b)(1) of the P&A
Regulations. As a result, we conclude that good cause has been shown for the
failure to timely make the election provided for in section 3 of Rev. Proc. 93-40.
Furthermore, we find that the government is not prejudiced by the issuance of
this ruling and that the other requirements of section 301.9100-1 have been
satisfied. Accordingly, the filing of Form 5310-A, as described above, will be
deemed to be a timely filing for purposes of notifying the Service that Company F

201247024

is operating four qualified separate lines of business under section 414(r) of the
Code with respect to the Year 5 plan year. Accordingly, Company F is granted
an extension of 6 months from the date of the issuance of this ruling letter to file
notification of the QSLOB election on Form 5310-A with the appropriate IRS
Office.

No opinion is expressed as to the tax treatment of the transaction described
herein under the provisions of any other section of either the Code or regulations,
which may be applicable thereto. This ruling does not constitute a determination
that a separate line of business may be treated as satisfying the requirement of
administrative scrutiny within the meaning of section 1.414(r)-6 of the I.T.
Regulations.

This letter is directed only to the taxpayer who requested it. Section 6110(k)(3) of
the Code provides that it may not be used or cited as precedent.

Copies of this letter have been sent to your authorized representatives in
accordance with a Power of Attorney on file in this office.

If you wish to inquire about this ruling, please contact XXXXXXXXXX at () -
****. Please address all correspondence to XXXXXXXXXX.

Sincerely yours,

[illegible signature]

Donzell Littlejohn, Manager
Employee Plans Technical Group 2

Enclosures:
Deleted copy of ruling letter
Notice of Intention to Disclose

CC: XXXXXXXXXX, Power of Attorney