9100 relief to file a late QSLOB election (Form 5310-A) for a walled-off defense contractor's 401(k) plan

Plain-English summary

A U.S. subsidiary that performs classified work for the U.S. government must be walled off from its foreign parent under a "Foreign Ownership, Control and Influence" (FOCI) security framework, and it runs its own 401(k) plan solely for its own employees. Retirement-plan coverage and nondiscrimination rules generally must be tested across an entire controlled group of related companies. When this subsidiary's plan was tested on a controlled-group basis, it failed the § 410(b) minimum-coverage test. The company wanted to treat the subsidiary as a "qualified separate line of business" (QSLOB) under § 414(r), which lets an employer apply the coverage and nondiscrimination rules to that unit's employees separately, but electing QSLOB treatment requires filing Form 5310-A by a deadline, which the company missed. It asked the IRS for "9100 relief," a discretionary extension under Treas. Reg. § 301.9100-1, and the IRS granted 60 days to file the late Forms 5310-A. The company qualified because it requested relief before the IRS found the failure, was unaware of the filing requirement despite reasonable diligence, and reasonably relied on advisors who never told it to make the election; and granting relief would not prejudice the government, since there is no statute of limitations for plan-qualification issues and no tax was reduced. The ruling addresses only timeliness; it does not decide whether the subsidiary actually qualifies as a separate line of business or meets the "administrative scrutiny" requirement. This matters because QSLOB status can rescue a controlled group's plan from failing coverage testing, and 9100 relief can restore a missed QSLOB election.

Ruling snapshot

• Question: Should the employer get an extension of time under § 301.9100-1 to file a late QSLOB election (Form 5310-A) under § 414(r)?
• Outcome: Approved (9100 relief granted; 60 days to file the late Forms 5310-A for the testing year)
• Key authorities: IRC § 414(r); §§ 410(b), 401(a)(4); 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: 202152009 Third Party Communication: None
Release Date: 12/30/2021 Date of Communication: Not Applicable
Index Number: 9100.00-00
Person To Contact:
---------------- ----------------, ID No. -----------------
--------------------------------------- Telephone Number:
--------------------------------------- --------------------
----------------------------------------------- Refer Reply To:
-------------------------- CC:EEE:EB:QP1
------------------------- PLR-107910-21
Date:
October 01, 2021

-----------------

Legend

Company A = --------------------------------------------
Company B = ------------------------------------------------------------------------------
------------
Company C = ---------------
Company D = --------------------------------------------
Company E = ------------------------------
Company F = -------------------------------------------------
Company G = ------------------------------------------
Country 1 = ----------
Country 2 = ---------------------
State X = -------------
Business 1 = ------------------------------------------------------------------------------
----------------------------
Business 2 = ------------------------------------------------------------------------------
------------------------
Business 3 = -------------------------
Year 1 = -------
Year 2 = -------
Year 3 = -------
Year 4 = -------
Year 5 = -------
Consultant = ----------------
Law Firm = --------------------------------
Date A = -----------------------

Dear --------------:
PLR-107910-21 2

This is in response to a letter dated March 16, 2021, 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 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 (“Code”).

FACTS

The following facts and representations have been submitted under penalties of perjury
in support of your ruling request.

Company A is a Country 1 company. Company A is the parent company of various
direct and indirect subsidiaries, including Company B. Company C is a State X
corporation and an indirect subsidiary of Company A. Most of Company A's U.S.
subsidiaries are organized as subsidiaries under Company C, (the Company C Group).
Such subsidiary companies include Company D and Company E. Company B is not
one of the U.S. subsidiaries in the Company C Group.

Company F, a Country 2 entity, is a wholly-owned subsidiary of Company A. There are
several companies organized as direct and indirect subsidiaries under Company F,
including Company B and its parent company, Company G, a Country 2 entity.
Company B is the only U.S.-incorporated company among such subsidiaries of
Company F. Company B is a State A limited liability company, a wholly-owned
subsidiary of Company G. Company B contracts with the U.S. Government to provide
certain services. Company B performs U.S. Government work that requires U.S. facility
and/or security clearance; i.e., Company B's services involve either U.S. classified
information and/or the personnel working on Company B contracts must possess a U.S.
security clearance. As such, Company B operates pursuant to a comprehensive Foreign
Ownership Control and Influence ("FOCI') mitigation framework to ensure protections
for U.S. Government classified and unclassified controlled information.

Company A maintains three lines of business: Business 1, provided by Company B;
Business 2, provided by Company A’s other direct and indirect subsidiaries; and
Business 3, operated by Company A. Several of Company A's subsidiaries, including
Company D, Company E, and other subsidiaries organized under Company C as well
as Company B, have locations and employees in the United States. Company B
maintains offices and training facilities in the United States, although its operations for
the U.S. Government are located and performed primarily outside of the United States.
In contrast, Company A's other U.S. entities, such as Company D and Company E,
operate almost exclusively within the U.S. Company A treats Company B as a single
line of business due to the nature of Company B's business, which is significantly
different from that of Business 1 and Business 2.
PLR-107910-21 3

Company A acquired Company G in Year 1 pursuant to a share purchase agreement
(the Acquisition). The Acquisition included Company B, which has remained a wholly
owned subsidiary of Company G since the Acquisition. Due to its FOCI certification,
Company B is required to be walled off from Company A and the other companies in
Company A’s controlled group, and to maintain additional protections against foreign
influence or control. All Company B employees, including all management personnel,
generally work exclusively for Company B except for rare situations where Company B
may be required to provide support to an affiliate. However, on these occasions,
Company B employees remain under Company B' s control, are paid by Company B,
and must go through an approval process involving Company B's Government Security
Committee as well as the U.S. Defense Counterintelligence and Security Agency
("DCSA"). Company B maintains its own financial and accounting systems human
resources system and procedures. Company B maintains its own section 401(k) plan
which benefits only the employees of Company B.

For purposes of DCSA and FOCI clearance, Company B must institute various controls
in its operations, including maintaining the following: (1) a board of directors separate
from Company A with a number of DCSA-approved independent outside directors that
outnumber the inside directors; (2) a special Government Security Committee made up
of only the outside directors that manage the overall FOCI compliance regime and who
must report directly to DCSA; (3) separate employees that do not work for or report to,
and are not controlled by, any affiliate of the Operating Parent; (4) separate
communication systems (email, phones, etc.) with. regular monitoring of
communications with the Company A Group to ensure that no control or influence is
exercised over Company B employees by any affiliate; and (5) an approval process via
the Government Security Committee for any in-person visits, meetings, and other
interactions between Company B and the members of Company A’s controlled group.

Prior to the Acquisition, Company B sponsored and maintained a section 401(k) plan
(the Company B Plan). Due to the unique nature of its business and its workforce,
Company B has continued to maintain the Company B Plan exclusively for the benefit of
Company B employees. Because Company B operated its own business, was required
to maintain a mostly separate existence from the Company A Group, and maintained
the Company B Plan for the benefit of its own employees only, the nondiscrimination
tests with respect to the Company B Plan for Year 1 (the year of the Acquisition), Year
2, and Year 3, were not performed on a controlled group basis, and thus did not take
into account the other companies in the Company A Group. When the nondiscrimination
tests were performed taking into account only Company B, all tests were passed.

In Year 4 or Year 5, Company D advised Company B that the Company B Plan had to
be tested on a controlled group basis starting with the Year 3 plan year. For Year 1 and
Year 2, Company B could rely on the transition rule in Section 410(b)(6)(C) to pass the
testing.
PLR-107910-21 4

In Year 5, Company B engaged Consultant for additional support on nondiscrimination
testing for the Company B Plan. Consultant was informed that Company B was part of
the Company B Group controlled group of companies. When the nondiscrimination
testing was performed by Consultant on a controlled group basis, the Company B Plan
failed the 410(b) Ratio Percentage Test for the Year 3 plan year. After discovering and
investigating the testing failure, Law Firm was engaged by Company E to advise on
whether Company B constituted a QSLOB such that the Company B Plan could apply
the requirements of Sections 410(b) and 401(a)(4) separately with respect to the
employees of Company B.

In December of Year 5, Law Firm advised Company B that it could meet the safe harbor
under § 1.414(r)-5(d) of the Income Tax Regulations and rely on it during the period
allowed under such regulations. Law Firm also advised that Form 5310-A, Notice of
Qualified Separate Lines of Business ("Form 5310-A"), should have been filed with the
Internal Revenue Service (IRS) by Date A to effectively make the QSLOB election for
the Year 2 testing year. Company B informed Law Firm that Form 5310-A had not been
filed with the IRS. Law Firm then advised Company B that an extension of time to file
Form 5310-A could be requested pursuant to § 301.9100-1, effective for the Year 2
testing year and the transition period.

RULING REQUEST

Company A requests a ruling that the IRS grant an extension of time pursuant to
§ 301.9100-1 to file updated Forms 5310-A for Year 2, to reflect the treatment of
Company B as separate line of business for QSLOB purposes. Company A has
requested this relief under § 301.9100-1 prior to the IRS discovery of any failure to file
the election. Company A also represents that, other than the filing of Form 5310-A, the
Company B plan satisfied all the requirements of section 414(r) and the regulations
thereunder for Year 2.

LAW AND ANALYSIS

In general, section 414(r) 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 QSLOB.

Section 414(r)(2)(B) 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-107910-21 5

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 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) 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 QSLOBs 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 in this case 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 interests 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
PLR-107910-21 6

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) 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 represents that (i) this request for relief is being filed before the IRS
discovered the failure to file Form 5310-A, (ii) Company A inadvertently failed to make
the filing because, after exercising reasonable diligence (through the companies in the
controlled group), it was unaware of the necessity for filing Form 5310-A, and (iii)
Company A (through the companies in its controlled group) reasonably relied on third-
party advisors for advice on plan administration and none of the service providers
advised Company A to make the QSLOB election by filing Form 5310-A. Thus,
Company A satisfies clause (i), (iii), and (v) of § 301.9100-3(b)(1). Furthermore,
although some of the tax years at issue are closed under the statute of limitations, there
is no statute of limitations for plan qualification issues, including nondiscrimination
concerns. In addition, you represent that neither Company A nor Company B will have a
lower tax liability than it otherwise would have if the election had been timely filed, and
there are no tax consequences for any taxpayer on account of the election. Thus, the
interests of the Government would not be prejudiced by providing the requested relief.

RULING

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 elections on Forms 5310-A for Year 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).

The rulings contained in this letter do not constitute a determination that a separate line
of business satisfies the requirement of administrative scrutiny within the meaning of
§ 1.414(r)-6.

PROCEDURAL STATEMENTS

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. 2021-1, 2021-1 I.R.B. 1, section
7.01(16)(b). This office has 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
PLR-107910-21 7

retroactively if there has 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 was 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. 2021-1, section 11.05.

No opinion is expressed as to the tax treatment of the transaction described herein
under any other provisions of the Code or regulations that may be applicable thereto.
This ruling letter is directed only to the taxpayer who requested it. Section 6110(k)(3)
provides that it may not be used or cited as precedent.

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

                                   Sincerely,

                                   /s/ Neil Sandhu

                                   Neil Sandhu
                                   Senior Technician Reviewer
                                   Qualified Plans, Branch 1
                                   (Employee Benefits, Exempt Organizations, and
                                   Employment Taxes)

cc: