Employer receives more time for separate-line notices

Plain-English summary

An employer operated two qualified separate lines of business and had timely filed its initial election. Changes to the controlled group required updated Form 5310-A notices for the 2011 and 2012 testing years, but the employer's attorney failed to file them. The employer supplied the needed information, reasonably relied on the attorney, and requested relief before the IRS discovered the failures. The IRS granted 60 days to file both notices. It did not determine whether the separate lines otherwise met the substantive requirements of IRC § 414(r).

Ruling snapshot

• Question: Could the employer receive additional time to file its 2011 and 2012 QSLOB notices?
• Outcome: Approved, with 60 days to file both Forms 5310-A
• Key authorities: IRC § 414(r); Rev. Proc. 93-40; Treas. Reg. §§ 301.9100-1 through 301.9100-3

Full text (IRS public release)

DEPARTMENT OF THE TREASURY 201502020

INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES OCT 16 2014

DIVISION

SE:T:EP:RA:T1

UIL No.: 9100.00-00

Attn.:

Legend:

Company A =

Company B =

Company C =
Company D =
Company E =
Company F =
Company G =
Company H =
Company I =
Company J =

Company K =

QSLOB 1 =

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QSLOB 2 =

Attorney L =

Plan X =

Plan Y =

Dear

This is in response to a letter dated May 13, 2014, as supplemented by
information received on August 20, 2014, in which you request, through your
authorized representative, extensions 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
of business ("QSLOBs") under section 414(r)(2) of the Internal Revenue Code
(the "Code") for testing years beginning January 1, 2011, and January 1, 2012.

The following facts and representations have been submitted under penalties of
perjury in support of Company A's ruling request. Affidavits supporting these
facts and representations were also submitted.

In 2010, Company A formed part of a controlled group that operated two qualified
separate lines of business, QSLOB 1 and QSLOB 2. QSLOB 2 included
Company B, an affiliated company with no employees, Company C, Company D,
Company E, and Company F. Companies C, D, E, and F of QSLOB 2
participated in Plan Y. QSLOB 1 consisted of Company A and Company G. The
entities in QSLOB 1 participated in Plan X. In 2010, Company F was sold and
Company K became a member of Company A’s controlled group and a member
of QSLOB 1. Attorney L gave timely notice of the initial QSLOB election by filing
the Form 5310-A on behalf of Company A for the testing year beginning January
1, 2010 (‘2010 Testing Year’). Attorney L also timely filed a modified election for
the 2010 Testing Year.

In 2011, Company H, Company I, and Company J became part of Company A's
controlled group, adopted Plan X, and became part of QSLOB 1. Although
Company A informed Attorney L of these changes for purposes of modifying its
prior QSLOB election, Attorney L failed to file the Form 5310-A reflecting the
acquisitions of Companies H, I, and J, and the inclusion of these companies in
QSLOB 1 on or before October 15, 2012, the Notification Date for the testing
year beginning January 1, 2011 (“2011 Testing Year’).

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In 2012, Company B, Company C and Company D were reassigned from

QSLOB 2 to QSLOB 1, and Company C and Company D became adopting

employers of Plan X. After the reassignment, QSLOB 2 consisted of one

member, Company E. Company A provided Attorney L with the information

necessary to file the Form 5310-A for the testing year beginning January 1, 2012

(‘2012 Testing Year’), and both Company A and Attorney L understood that the

filing of the election was Attorney L’s responsibility. However, Attorney L became
engrossed in business and personal matters and failed to file the election on or

before October 15, 2013, the Notification Date for the 2012 Testing Year.

Based on the above facts and representations, you request an extension of 60
days from the date of issuance of a favorable letter ruling in which to file (i) a
Form 5310-A QSLOB Notification for the 2011 tax year, which was otherwise due
no later than October 15, 2012, and (ii) a Form 5310-A QSLOB Notification for
the 2012 tax year, which was otherwise due not later than October 15, 2013,
pursuant to section 301.9100-3 of the P&A Regulations.

In general, section 414(r) of the Code provides that for purposes of sections
129(d)(8) and 410(b) 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 qualified separate lines of business
for the year, the employer may apply the minimum coverage requirements of
section 410(b) (including the nondiscrimination requirements of section 401(a)(4)
and the minimum participation requirements of section 401(a)(26)) 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).

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. The testing year is the calendar
year. Section 3.06 of Rev. Proc. 93-40 provides 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.

Section 301.9100-1(a) of the P&A Regulations states that the regulations under
sections 301.9100-1, 301.9100-2 and 301.9100-3 provide the standards the

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Commissioner of Internal Revenue (“Commissioner”) will use to determine
whether to grant an extension of time to make a regulatory election. It further

provides that the granting of an extension of time is not a determination that the
taxpayer is otherwise eligible to make the election.

Section 301.9100-1(b) of the P&A Regulations defines a “regulatory election” to
mean an election whose due date is prescribed by a regulation, 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 section 414(r) of the Code and Section 3
of Rev. Proc. 93-40 constitutes a regulatory election.

Section 301.9100-1(c) of the P&A Regulations provides that the Commissioner,
in the Commissioner's discretion, may grant a reasonable extension of time
under the rules of sections 301.9100-2 and 301.9100-3 to make a regulatory
election.

Section 301.9100-2 of the P&A Regulations lists certain elections for which
automatic extensions of time to file are granted. Section 301.9100-3 generally
provides guidance with respect to the granting of relief with respect to those
elections not referenced in section 301.9100-2. The relief requested in this case
is not referenced in section 301.9100-2.

Section 301.9100-3(a) of the P&A Regulations provides that applications for relief
that fall within section 301.9100-3 will be granted when the taxpayer provides
sufficient 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, except as
provided in paragraphs (b)(3)(i) through (iii) of this section, a taxpayer will be
deemed to have acted reasonably and in good faith if (i) the taxpayer’s request
for relief under this section is filed before the failure to make a timely election is
discovered by the Service; (ii) the taxpayer inadvertently failed to make the
election because of intervening events beyond the taxpayer’s control; (iii) the
taxpayer failed to make the election because, after exercising reasonable
diligence, the taxpayer was unaware of the necessity for the election; (iv) the
taxpayer reasonably relied upon the written advice of the Service; or (v) the
taxpayer 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(b)(3) of the P&A Regulations provides that a taxpayer is
deemed to have not acted reasonably or in good faith if (i) the taxpayer seeks to
alter a return position for which an accuracy-related penalty has been or could be
imposed at the time relief is requested; (ii) the taxpayer was informed in all

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material respects of the required election and related tax consequences, but
chose not to file the election; or (iii) the taxpayer requests relief based on
hindsight.

Section 301.9100-3(c)(1) of the P&A Regulations provides the standards for
determining whether the interests of the Government are prejudiced. Paragraph
(c)(1)(i) provides that the interests of the Government are prejudiced if granting
relief would result in 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. Paragraph (c)(1)(ii) 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 taxpayer's
receipt of a ruling granting relief under this section.

Company A's ruling request contains an explanation describing the
circumstances that caused its failure to give the Service timely notice of its
QSLOB elections for the 2011 and 2012 Testing Years. Regarding the 2011
Testing Year, Company A had exercised due diligence by providing Attorney L
with the necessary information to make a timely QSLOB election. Attorney L,
however, failed to file the Form 5310-A by October 15, 2012, the Notification
Date for the 2011 Testing Year, to include Companies H, I, and J in QSLOB 1.

With respect to the 2012 Testing Year, Company A informed Attorney L that
three entities in QSLOB 2, Company B, Company E, and Company F, were
transferring to QSLOB 1, for the specific purpose of preparing the Form 5310-A
for the 2012 Testing Year. However, Attorney L became engrossed in business
and personal matters and failed to make a timely election by October 15, 2013,
the Notification Date for the 2012 Testing Year.

This request for relief under section 301.9100-1 of the P&A Regulations was
made on May 13, 2014, before the Service discovered the failures to file the
elections for the 2011 and 2012 Testing Years. Based on these facts, Company
A is deemed to have acted reasonably and in good faith because it satisfies
clauses (i), (iii), and (v) of section 301.9100-3(b)(1), with respect to both testing
years.

Accordingly, Company A is granted an extension of 60 days from the date of the
issuance of this letter ruling in which to file (i) a Form 5310-A notice of a QSLOB
election for the 2011 Testing Year, and (ii) a Form 5310-A notice of a QSLOB
election for the 2012 Testing Year.

No opinion is expressed as to whether the separate lines of business of the
taxpayer satisfy the requirements (other than notifying the Secretary) under
section 414(r) of the Code.

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This ruling does not constitute a determination that a separate line of business
satisfies the requirement of administrative scrutiny within the meaning of section
1.414(r)-6 of the federal Income Tax Regulations.

No opinion is expressed as to the tax treatment of the transaction described
herein under any other provisions of the Code or regulations, which may be
applicable thereto.

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.

A copy of this letter has been sent to your authorized representative in
accordance with a power of attorney on file with this office.

Should you have any concerns regarding this ruling, please contact

.

Sincerely yours,

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

Enclosures:
Deleted copy of letter ruling
Notice 437

cc: