Late relief granted to file a "separate line of business" election for a retirement plan

Plain-English summary

A large employer that runs genuinely separate lines of business can test each one on its own for the coverage and nondiscrimination rules that retirement plans must satisfy, but only if it notifies the IRS by filing a Form 5310-A by a fixed deadline. This taxpayer, a holding company that sponsors a retirement plan, needed to combine two of its qualified separate lines of business (QSLOBs) into a new one after its corporate structure changed, but it missed the deadline to file that notice because the outside counsel it relied on never told it the filing was required. The taxpayer asked the IRS, under the "9100" relief rules in Treasury Regulation section 301.9100-3, for extra time to file. The IRS granted a 60-day extension, finding the taxpayer acted reasonably and in good faith (it reasonably relied on a tax professional who failed to advise it) and that granting relief would not prejudice the government because the relevant tax year was still open. The ruling is a routine example of how a taxpayer who misses a regulatory election deadline through professional error can still obtain relief.

Ruling snapshot

• Question: Should the taxpayer get an extension of time under Treas. Reg. § 301.9100-3 to file the late notice electing qualified separate line of business (QSLOB) treatment under section 414(r)?
• Outcome: Approved (60-day extension granted)
• Key authorities: IRC § 414(r); Treas. Reg. §§ 301.9100-1, 301.9100-3; Rev. Proc. 93-40

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201904006 Third Party Communication: None
Release Date: 1/25/2019 Date of Communication: Not Applicable
Index Number: 9100.00-00
Person To Contact:
-------------------- ------------------------, ID No. ------------------
------------------------------------------------------------ ---------------- ---------------------------------
------------------ Telephone Number:
-------------------------- --------------------
---------------------------------------- Refer Reply To:
--------------------------- CC:TEGE:EB:QP2
PLR-115134-18
Date:
October 25, 2018

Legend
Taxpayer = --------------------------
Plan = ---------------------------------------------
Year 1 = ------
Year 2 = ------
Year 3 = ------
Year 4 = ------
Date 1 = ---------------------
Date 2 = ---------------------
Date 3 = ------------------------
QSLOB 1 = --------------------------------------------------------
QSLOB 2 = ----------------------------------------------------------
QSLOB 3 = -------------------------------------------------------------------------------------

Dear-------------

This is in response to a letter dated April 27, 2018, in which you request, through your
authorized representative, an extension of time pursuant to § 301.9100-1 of the
Procedure and Administration Regulations to file the notice of election described in
Section 3 of Revenue Procedure 93-40, 1993-2 CB 535 (“Rev. Proc. 93-40”) for QSLOB
3 to be treated as a qualified separate line of business (“QSLOB”), effective as of Date
2, 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 Taxpayer’s ruling request.
PLR-115134-18 2

Taxpayer is the sponsor of the Plan, as well as the sponsor or affiliate of the sponsor of
a number of other plans. Taxpayer is a domestic corporation, organized as a holding
company, that owned directly or through subsidiaries, a controlling interest of varying
sizes in subsidiaries. Before Year 1, Taxpayer elected qualified separate line of
business treatment for QSLOB 1, effective on Date 1. With respect to the election that
is the subject of this ruling request, Taxpayer was part of a controlled group that
operated six QSLOBs, including QSLOB 1 and QSLOB 2. During Years 1 and 2, the
membership of QSLOB 1 was materially modified due to changes in the Taxpayer’s
controlled group structure and demographics and as a result, the Plan was no longer
able to satisfy the applicable non-discrimination requirements. The employee of
Taxpayer who had supervisory responsibility for the Plan had no employee benefits
expertise or experience and relied on external counsel for advice on various plan
compliance matters. However, they did not advise him that he needed to make a timely
QSLOB election to combine QSLOB 1 and QSLOB 2, forming QSLOB 3, as a result of
those changes in the controlled group structure and demographics. Accordingly,
Taxpayer requests a favorable ruling granting an extension of time pursuant to
§ 301.9100-1 to file a Form 5310-A QSLOB Notification with respect to QSLOB 3
effective on Date 2.

In general, section 414(r) provides that, for purposes of section 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 QSLOB.

Section 414(r)(2)(B) requires an employer to notify the Secretary of the Treasury if a line
of business is being treated as separate for purposes of section 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). 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) states that the regulations under §§ 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
PLR-115134-18 3

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) 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) and section 3 of Rev. Proc. 93-40 constitutes a regulatory election.

Section 301.9100-1(c) provides that the IRS, in its discretion, may grant a reasonable
extension of time under the rules of §§ 301.9100-2 and 301.9100-3 to make a
regulatory election.

Section 301.9100-2 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 § 301.9100-2. The
relief requested by Taxpayer is not referenced in § 301.9100-2.

Section 301.9100-3(a) provides that applications for relief that fall within § 301.9100-3
will be granted when the taxpayer provides sufficient evidence (including affidavits
described in § 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 interest of the Government.

Section 301.9100-3(b)(1) 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 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)(ii) 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.

Taxpayer requested relief before the IRS discovered the failure to make the election for
Year 2. Thus, Taxpayer satisfies clause (i) of § 301.9100-3(b)(1). Taxpayer represents
that it reasonably relied on a qualified tax professional and the tax professional failed to
make or advise Taxpayer to make the election. Taxpayer’s representative was not
experienced in employee benefits and engaged external counsel to advise Taxpayer
PLR-115134-18 4

with respect to plan compliance with the requirements of the Code. The employee of
Taxpayer with supervisory responsibility for the Plan represents that external counsel
did not advise him of the necessity to timely make the election. Thus, Taxpayer also
satisfies clause (v) of § 301.9100-3(b)(1). However, upon discovery of the problem, he
took prompt action to ensure that the Plan continued to comply with the non-
discrimination requirements. In addition, as the statute of limitations is still open with
respect to Year 2, the interests of the government would not be prejudiced by providing
relief.

Accordingly, Taxpayer is granted an extension of 60 days from the date of issuance of
this ruling to file notification of the QSLOB election for QSLOB 3 on Form 5310-A,
effective on Date 2, 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).

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

The rulings contained in this letter are based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party, as specified in Rev. Proc. 2018-1, 2018-1 IRB 1, section
7.01(16)(b). This office had not verified any of the material submitted in support of the
request for ruling, and such material is subject to verification on examination. The
Associate office will revoke or modify a letter ruling and apply the revocation
retroactively if there had been a misstatement or omission of controlling facts; the facts
at the time of the transaction are materially different from the controlling facts on which
the ruling is based; or in the case of a transaction involving a continuing action or series
of actions, the controlling facts change during the course of the transaction. See Rev.
Proc. 2018-1, section 11.05.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter. This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3)
of the Code provides that it may not be used or cited as precedent.
PLR-115134-18 5

In accordance with the power of attorney on file with this office, a copy of this letter is
being sent to your authorized representative.

                                    Sincerely,



                                    Keith R. Kost
                                    Senior Technician Reviewer
                                    Qualified Plans Branch 2
                                    Office of Associate Chief Counsel
                                    (Tax Exempt and Government Entities)

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