Employer received 60 days to file a late QSLOB notice

Plain-English summary

A company and an acquired business maintained separate operations and separate 401(k) plans but failed to file Form 5310-A notifying the IRS that they would be treated as qualified separate lines of business. A later benefits review uncovered both an operational issue in the acquired company's plan and the missing notice. The company had filed plan reports consistent with relying on the QSLOB rules, voluntarily sought relief before the IRS found the failure, and still had an open affected tax year. The IRS found that the company acted reasonably and in good faith and that relief would not prejudice the government. It granted 60 days to file Form 5310-A, without deciding whether the business lines actually met the substantive QSLOB requirements.

Ruling snapshot

• Question: Could the employer file a late notice electing qualified-separate-line-of-business treatment?
• Outcome: Approved, with 60 days to file Form 5310-A.
• Key authorities: IRC § 414(r); Rev. Proc. 93-40; Treas. Reg. §§ 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                     Department of the Treasury
                                                             Washington, DC 20224

Number: 201743008                                            Third Party Communication: None
Release Date: 10/27/2017                                     Date of Communication: Not Applicable
 9100.00-00
                                                             Person To Contact:
------------------------                                     -----------------, ID No. ------------------
-----------------------------------                          Telephone Number:
---------------------------------------------------------    ----------------------
-------------------------------                              Refer Reply To:
-------------------------------------                        CC:TEGE:EB:QP1
                                                             PLR-104395-17
                                                             Date:
                                                             July 28, 2017




Company A               = ---------------------------------------------------------------------------------------
                          --------------------------
Company B               = ------------------------------------------
Company C               = ---------------------------------------------------------------------------------------
                          -----------------------------
Company D               = -------------
State A                 = ------------
State B                 = ----------
State C                 = --------------
Date 1                  = -------
Date 2                  = -------
Date 3                  = -------
Date 4                  = -------
Business A              = ---------------------------------------------------------------------------------------
                          ---------------------------------------------------------------------------------------
                          --------------------------------------------------------------------------------
Business B              = ---------------------------------------------------------------------------------------
                          ---------------------------------------------------------------------------------------
                          ---------------------------------------------------
Representative          = ---------------------------------------------------------------------------------------
                          ---------------------------------------------------------------------------------------
                          ---------------------------------------------------------------------

Dear --------------:


This is in response to a letter dated January 31, 2017, in which you request, through
your authorized representatives, 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.
PLR-104395-17                                2

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”).

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

Company A is a State A corporation involved in Business A. Its principal offices are in
State B. It -------------------from Company B on Date 1. Since ---------------, Company A
has been looking to expand its presence through the acquisition of other companies.
As part of its acquisition strategy, Company A’s controlled group acquired Company C
on Date 2. Company C is engaged in Business B, which compliments Business A.
Company C’s primary offices are in State C.

Company A and Company C are separate corporate entities that have been
represented to maintain separate lines of business. Company A has maintained a
qualified profit-sharing plan under sections 401(a) and 401(k) of the Code (“401(k)
Plan”). Company C has maintained a separate 401(k) plan since (and prior to) joining
the Company A controlled group on Date 2.

On Date 3, Company A acquired Company D. Company D has a highly-specialized
employee benefits department, which includes Representative. On Date 4,
Representative was reviewing Company A and Company C’s benefits plans. During her
review, Representative found an operational failure with regard to Company C’s
matching contributions in its 401(k) plan. As part of a further review, Representative
found that Company C had failed to file the Form 5310-A.

Company A requests a ruling that the Service grant an extension of time pursuant to
section 301.9100-1 of the P&A Regulations to file an election described in Section 3 of
Rev. Proc. 93-40 and file a Form 5310-A for the ------- Plan year.

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 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) 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).
PLR-104395-17                                3

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 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 Internal
Revenue Service (“IRS”) 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 IRS, in its 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 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 IRS; (ii) the taxpayer inadvertently failed to make the election because of intervening
PLR-104395-17                                  4

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 IRS; 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(c)(1)(ii) of the P&A Regulations provides that ordinarily the interests
of the Government will be treated as prejudiced and that ordinarily the IRS 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 IRS timely notice of its QSLOB election for the ------- testing
year. Company A represents that its Form 5500 filings since its acquisition of Company
C are consistent with an intent to rely on the QSLOB rules. Company A was initially
unaware of its requirement to file Form 5310-A even after exercising reasonable
diligence, but when Company A discovered that the requisite Form 5310-A had not
been timely filed, it reached out to the IRS on a voluntary disclosure basis and also
promptly filed this request for relief under section 301.9100-3 of the P&A Regulations.
Company A requested this relief prior to the IRS discovering the failure to file the Form
5310-A. Thus, Company A satisfies clauses (i) and (iii) of section 301.9100-3(b)(1). In
addition, because the statute of limitations for Company A’s ------- tax year remains
open and Company A will not have a lower tax liability than it would have if it would
have filed a timely election, the interests of the government would not be prejudiced by
providing relief.

Accordingly, Company A is granted an extension of 60 days from the date of the
issuance of this ruling letter to file notification of the QSLOB election on Form 5310-A
with the appropriate office of the IRS.

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

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.
PLR-104395-17                                5


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


                                         Sincerely,




                                         _/s/_____________________________
                                         Lauson C. Green
                                         Branch Chief, Qualified Plans Branch 2
                                         Office of the Associate Chief Counsel
                                         (Tax Exempt and Government Entities)
                                         (Employee Benefits)




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